The American Rescue Plan Act of 2021 (ARPA) includes a provision that authorizes a 100% subsidy of COBRA health insurance premiums to help continue health benefits for employees who lost their jobs or suffered a reduction in work hours. On April 7, 2021, the DOL issued guidance on the ARPA COBRA premium assistance.
Eligibility
The ARPA’s COBRA subsidy is available to Assistance Eligible Individuals (AEIs) who lost their jobs or were placed on part-time work status since November 1, 2019. An AEI is a COBRA qualified beneficiary who meets the following requirements during the period from April 1, 2021 through September 30, 2021:
- Is eligible for COBRA continuation coverage by reason of a qualifying event that is a reduction in hours (such as reduced hours due to change in a business’s hours of operations, a change from full-time to part-time status, taking of a temporary leave of absence, or an individual’s participation in a lawful labor strike, as long as the individual remains an employee at the time that hours are reduced) or an involuntary termination of employment (not including a voluntary termination); and
- Elects COBRA continuation coverage.
Workers who reduced their hours or left their jobs voluntarily, or who qualify for Medicare or another group health plan, are not eligible.
Special Election Period
Plan sponsors are required to provide a special election to AEIs with a qualifying event that occurred before April 1, 2021, and who either did not elect COBRA or is no longer enrolled. AEIs must be notified by May 31, 2021, and have 60 days from when the notice was provided to elect coverage (Note: previous COVID-19-related extensions do not apply to subsidy notices or elections). The DOL has released model notices for this purpose.
Subsidy Period
The ARPA COBRA subsidy period can last from April 1, 2021 through September 30, 2021. However, it will end earlier if an AEI:
- Becomes eligible for another group health plan, such as a plan sponsored by a new employer or a spouse’s employer (not including excepted benefits, a qualified small employer health reimbursement arrangement, or a health FSA), or becomes eligible for Medicare, or
- Reaches the end of the maximum COBRA continuation coverage period.
State COBRA Requirements
The ARPA does not change any requirement of a state continuation coverage program. The ARPA only allows AEIs who elect continuation coverage under state insurance law to receive premium assistance from April 1, 2021 through September 30, 2021. It also allows AEIs to switch to other coverage offered to similarly situated active employees if the plan allows it, provided that the new coverage is no more expensive than the prior coverage.
Administrative Fees
AEIs will not need to pay any part of what they would otherwise pay for their COBRA continuation coverage, including any administration fee that would otherwise be charged.
Credits/Refunds
Any AEI who has already paid a COBRA premium for April 2021 or any month during the subsidy period, the guidance instructs the individual to discuss a credit against future premium payments or a refund with the employer or plan administrator.
Securing the Tax Credits
In exchange for offering the subsidy, employers are reimbursed through a payroll tax credit against each participating employee’s quarterly taxes. Since the tax credit is refundable, employers can keep the difference if the credit is larger than their tax obligations.
Employers may need to make adjustments to any pandemic-related COBRA arrangements they may have made to ensure they receive the most advantageous tax credit possible. For example, employers that paid a portion of their laid-off workers’ COBRA premiums during the pandemic as part of a severance agreement may need to re-set the affected workers’ contributions for April-September 2021 in order to receive a full premium subsidy.
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