COBRA Subsidies Included in the American Rescue Plan Act
On March 11, President Biden signed into law H.R. 1319, the American Rescue Plan Act of 2021 (ARPA), which is the $1.9 trillion COVID-19 relief bill that included various provisions aimed at providing relief to employers, employees and consumers recovering from the economic burdens imposed on them during the pandemic. Included in this bill was a provision to create a temporary subsidy for premium payments for COBRA health insurance in group health plans that will be initially paid for by employers but later reimbursed through tax credits. Below is an outline of the details of the COBRA premium subsidies.
The COBRA subsidies provided in the ARPA would allow eligible individuals, defined as qualified beneficiaries under ordinary COBRA rules who are eligible for COBRA continuation coverage due to involuntary termination of employment or reduction of hours, to receive health coverage relief in the form of tax-free COBRA premium subsidies. Eligible individuals qualify for up to six months of coverage beginning April 1, 2021, and ending September 30, 2021, known as the “subsidy period.” Eligible individuals will be allowed to continue coverage for the full six months unless:
- The individual becomes eligible for other group health coverage or Medicare; or
- The individual has exhausted their typical qualifying period of COBRA coverage (usually 18 months) during the subsidy period.
Under the new bill, individuals who did not elect COBRA coverage after their qualifying change in employment status may now elect to enroll in COBRA coverage during a special enrollment period. An individual can elect to enroll in the COBRA coverage and premium subsidies either because they never elected COBRA or they dropped previous COBRA coverage, and the individual will have 60 days to enroll after their employer issues the required notification alerting them that they qualify for the premium subsidy. Those who enroll in this special period will also be eligible for six months of coverage subsidies starting April 1 through the subsidy period or through what would have been the end of their typical COBRA coverage period.
The ARPA also permits (but does not require) employers to allow individuals to enroll in a different type of health insurance coverage than they previously had in effect at the time of their termination or reduction in hours. Individuals will have 90 days from the date of required employer notice of the COBRA premium subsidies to enroll in this new coverage plan, but employers may only allow the individuals to change their coverage if they choose a plan that is available to similarly-situated active employees and the premium cost for the new plan is equal to or less than the premium for the coverage the individual would have been able to elect at the time of the original COBRA-qualifying event.
The COBRA subsidy would cover the entire cost of the premium for eligible individuals enrolled in coverage during the subsidy period, and the subsidy would come at no cost to the eligible individual. Instead, employers who sponsor their group health plans are responsible for paying the COBRA premiums to their respective health insurance carriers, but they’ll be fully reimbursed for the cost of the COBRA premiums through dollar-for-dollar tax credits against quarterly employment taxes. The law also requires employers to refund any COBRA premiums paid by subsidy-eligible individuals during the subsidy period. Employers have 60 days after the date on which an individual made the premium payment to refund the individual, and employers can claim the same tax credits to offset these refunded premiums.
Actions for Employers
As mentioned above, employers and plan sponsors must provide a notice to eligible individuals that COBRA subsidies are available to them. All eligible individuals who could elect COBRA before April 1 must be notified by their plan sponsors of their new rights under ARPA, and the normal COBRA election paperwork provided to individuals who become eligible during the subsidy period has to be updated to explain ARPA rights. Additionally, employers must notify eligible individuals that their subsidies are ending between 15-45 days before the subsidies lapse. To help employers meet all of these notification requirements, the ARPA contains language that will likely require the Department of Labor (DOL) and other relevant federal agencies to issue guidance and/or model notices that employers can use to create their own notices.
DOL and other federal agencies are expected to release additional guidance for employers and eligible individuals to understand the benefits and requirements to comply with the COBRA premium subsidy rules in the coming weeks. CUPA-HR will track any developments on the program and keep members apprised of any new requirements to help them comply with these rules.