On March 11, 2021, the President signed into law the American Rescue Plan Act (“ARPA”), codifying a myriad of changes under the law, including to the Consolidated Omnibus Budget Reconciliation Act (“COBRA”), which provides continuation health coverage for certain employees after their separation from employment.
One of the more significant changes for employers under the ARPA is the shifting of responsibility for paying for the COBRA continuation health coverage. Prior to the enactment of the ARPA, in order to receive continuing coverage under COBRA, an individual who was eligible for COBRA coverage due to involuntarily separation from employment or a reduction in work hours was required to pay the entirety of the premiums associated with their health care coverage as well as an administration fee of up to a 2% of the premium cost.
For certain COBRA eligible individuals, the ARPA shifts the responsibility for paying the premium and administration fee from the former employee to the employer for the period between April 1 to September 30, 2021. In order to provide relief to employers as a result of this new financial obligation, the ARPA provides a tax credit equal to the costs incurred to employers that pay these costs. This new obligation applies to both public and private employers and the relief is also available to both public and private employers.
This COBRA subsidy will be available to employees and their dependents who have lost employer-sponsored health coverage due to an involuntary separation of employment or an involuntary or voluntary reduction in hours worked. Eligibility for the subsidy is not limited to layoffs or separation related to the pandemic but applies to any COBRA-qualifying event.
Based on the effective period provided for in the ARPA, an individual described above will qualify for the subsidy if they are or become eligible for COBRA coverage between April 1 and September 30, 2021. Because COBRA coverage for the covered reasons lasts 18 months, individuals who experienced a COBRA-qualifying event prior to April 1, 2021 will still be within the 18-month coverage window in order to receive the subsidy from their former or current employer.
For example, an employee who was laid off in April 2020 and who remains enrolled in COBRA 12 months later in April 2021 will be entitled to the COBRA subsidy effective April 1, 2021 through the end of the 18-month period, which would expire at the end of September 2021.
Eligibility for the COBRA subsidy lasts from April 1, 2021 through the earliest of the following dates: (1) September 30, 2021 when the ARPA COBRA subsidy period ends; (2) the end of an employee’s COBRA coverage period; or (3) the date the employee obtains other group health plan coverage (such as through a new employer or a spouse’s employer) or becomes eligible for Medicare.
On April 7, 2021, the Department of Labor (“DOL”) issued model COBRA notices for employers to use to explain the new subsidy to eligible individuals. Employers or their COBRA administrators must notify eligible individuals of their right to receive the COBRA subsidy. Employers must also update their COBRA notices and send out notices informing eligible individuals when the available subsidies are set to expire. The model notices relevant to employers are as follows:
- Model General Notice and COBRA Continuation Coverage Election Notice – This is the model notice employers are required to provide individuals who experience a COBRA-qualifying event between April 1 and September 30, 2021 to inform them of their rights for COBRA coverage and to provide them with information about the ARPA’s COBRA subsidy.
- Model Notice in Connection with Extended Election Period – This model notice must be issued to individuals who experienced a COBRA-qualifying event before April 1, 2021 and have not reached the maximum period for their COBRA coverage and/or did not elect COBRA coverage when it was first offered. This notice informs individuals of their new rights under the ARPA and gives them another opportunity to elect COBRA coverage. This notice must be provided by May 31, 2021. These individuals then have 60 days after the notice is provided to elect COBRA coverage. However, this additional election period does not extend the period of COBRA coverage beyond the original maximum period (generally 18 months).
- Model Notice of Expiration of Premium Assistance – This notice informs individuals when their COBRA subsidy is about to expire due to the end of their coverage period or the end of the premium assistance period (September 30, 2021).
- Summary of COBRA Premium Assistance Provisions under the American Rescue Plan Act of 2021 and Request for Treatment as an Assistance Eligible Individual – This model form must be attached to the required COBRA notices. Individuals are required to fill out this form and return it to the employer to request the COBRA subsidy and provide information regarding their request.
The DOL also released FAQs about the COBRA subsidy under the ARPA. Employers should review this information and be prepared to provide qualified individuals with the updated COBRA notices regarding the COBRA subsidy.
