The American Rescue Plan Act of 2021 (ARPA) provides 100% subsidy of COBRA premiums for certain individuals and their covered dependents during the period from April 1, 2021 through September 30, 2021 (COBRA Premium Subsidy Period).
Here is what you should know:
Who is eligible for the COBRA Subsidy
Those who are eligible for the subsidy (premium assistance) are known as Assistance Eligible Individuals. Assistance Eligible Individuals do not have to pay any of the COBRA premium for the period of coverage from April 1, 2021 through September 30, 2021. The premium is reimbursed directly to the employer, plan administrator, or insurance company through a COBRA premium assistance credit.
An Assistance Eligible Individual is a COBRA qualified beneficiary who meets the following requirements during the COBRA premium subsidy period:
- Is eligible for COBRA continuation coverage by reason of a qualifying event that is an involuntary termination of employment (not including a voluntary termination or termination of employment for gross misconduct), or 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); and
- Currently enrolled in COBRA continuation coverage.
Additional election opportunity is available to a qualified beneficiary whose qualifying event was a reduction in hours or an involuntary termination of employment prior to April 1, 2021.
- If a qualified beneficiary did not initially elect COBRA continuation coverage and the maximum COBRA eligibility period has not yet expired, then this individual can enroll in COBRA continuation coverage to receive premium assistance. (Note: the maximum COBRA coverage period is generally 18 months from the employee’s reduction in hours or involuntary termination. Some states have similar laws where the maximum COBRA coverage period differs from Federal COBRA guidelines.)
- If a qualified beneficiary dropped the COBRA continuation coverage prior to April 1, 2021 and the maximum COBRA eligibility period has not yet expired, then this individual may have an additional election opportunity at this time. (For example, an individual who dropped COBRA continuation coverage because he or she was unable to continue paying the premium.)
- Employers or plan administrators must give each qualified beneficiary, under additional election opportunity, at least 60 days to choose whether or not to elect COBRA coverage, beginning from the date the election notice is provided, or the date the qualified beneficiary would otherwise lose coverage under the group health plan due to the qualifying event, whichever is later.
Under Federal law, you must offer COBRA coverage if you have a group health plan and at least 20 employees, but almost all states and the District of Columbia have passed similar “mini-COBRA” laws which apply to firms with fewer than 20 employees. State continuation coverage for mini-COBRA will differ from the Federal COBRA requirements, and it is very important to speak with your plan administrator to understand the eligibility requirements for the mini-COBRA subsidy.
What this Means for Employers
- Employers are required to notify qualified beneficiaries regarding the premium assistance and other information about their rights under the ARPA. Employers should coordinate with their health plan administrators to determine which terminated employees may be eligible for the subsidy and to ensure compliant notices are provided prior to the May deadline.
- Employers required to cover the COBRA premiums will be reimbursed through a federal tax credit filed on their quarterly Form 941 payroll tax return.
- Clients of Corporate Payroll Services can obtain a direct credit by reducing your federal employment tax deposit. Please call your local Branch office and speak with the Branch Manager on this topic.
- Employers cannot claim a COBRA subsidy credit if that amount was taken into account as qualified wages under CARES Act Employee Retention Credit or as qualified health plan expenses under qualified sick leave wages and qualified family leave wages (IRS Code 3131 and 3132 respectively).
- If a self-funded plan is not subject to federal COBRA, but the state requires continuation coverage, then the employer receives the tax credit and pays the insurer/third-party administrator (TPA) to subsidize coverage.
- If a fully insured plan is not subject to federal COBRA, but the state requires continuation coverage, then the insurer receives the tax credits and is responsible for ensuring Assistance Eligible Individuals continuation coverage at no cost.
- Employers should also coordinate with their legal counsel to review and update termination documents to include information regarding the subsidy and additional election period.
- If an employer relies on payment of COBRA benefits as consideration for a release of claims, such consideration may no longer be valid if the employer is being reimbursed. Such employers should therefore ensure that they make payment beyond the six-month subsidy, or provide separate consideration (such as a severance payment) in exchange for the release.
- Employers are required to notify qualified beneficiaries when their COBRA premium assistance is expiring. This notice must be provided between 15 to 45 days before their COBRA premium assistance expires.
- Assistance Eligible Individuals are required to notify their former employer or plan administrator when they become eligible for coverage under Medicare or another group health plan.
COBRA Subsidy Notice Requirements
By May 31, 2021, employers or plan administrators must notify Assistance Eligible Individuals regarding the premium assistance availability who have a qualifying event from April 1, 2021 through September 30, 2021, AND must also notify Assistance Eligible Individuals who had a qualifying event before April 1, 2021.
COBRA notices must include the following information:
- the forms necessary for establishing eligibility for the premium assistance;
- a description of the additional election period (if applicable to the individual);
- a description of the option to enroll in different coverage if permitted;
- a description of the requirement that the Assistance Eligible Individual notify the plan when he/she becomes eligible for coverage under another group health plan, or eligible for Medicare and the penalty for failing to do so;
- a description of the right to receive the premium assistance and the conditions for entitlement;
- if offered by the employer, a description of the option to enroll in a different coverage option available under the plan; and
- detailed contact information of the plan administrator and any other person maintaining relevant information in connection with the subsidy.
The Department of Labor has provided a COBRA Premium Subsidy page with a variety of information about the COBRA premium subsidy as well as information which helps employers create adequate notices for Assistance Eligible Individuals.
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