The Consolidated Omnibus Budget Reconciliation Act (COBRA) health insurance program allows eligible employees and their dependents to continue receiving health insurance coverage benefits if they experience reduced work hours or lose their job.
In March 2021, President Biden signed the American Rescue Plan Act (ARPA) of 2021 into law. This Act has a provision that offers a 100% subsidy of COBRA premiums in the period April 1, 2021, to September 30, 2021. The temporal subsidy aims to help people meet the cost of maintaining health coverage under state and federal coverage continuation laws.
This post explains more about the ARP COBRA subsidy.
What is the ARP COBRA Subsidy?
Employers must provide employees and their dependents an opportunity to continue a coverage plan for a limited period where certain events would lead to termination of that coverage. Employees usually have to pay the full cost of the COBRA coverage and an extra 2%. ARP requires that employers subsidize this cost for specific individuals from April 1, 2021, to September 30, 2021.
Who qualifies for the Subsidy?
The ARP COBRA subsidy applies to employees who continue coverage under COBRA in case of reduced work hours or involuntary job loss. However, an employer must grant an additional COBRA election opportunity to individuals who would have been eligible for the subsidy as of April 1 if they maintained COBRA coverage (without discontinuation after an election) or elected it when offered.
It’s important to note that this subsidy does not adjust the COBRA coverage period and is valid for all group health plans except health flexible spending arrangements.
Who is Not Eligible for COBRA Premium Assistance?
- Individuals eligible for other group health coverage (through a new employer or spouse’s group health plan)
- Individuals eligible for Medicare
- Employees and their dependents if employee termination was due to gross misconduct.
Participating in a Flexible Spending Account won’t disqualify you for premium assistance.
How do Employees find out about the ARP Rules?
Employers must provide the following:
- A written notice to applicable employees informing about rights to COBRA subsidies
- A notice on the expiration date for COBRA coverage (Provide this notice 15-45 days before expiration)
- A notice on the right to additional COBRA election (Provide this notice before May 31, 2021)
Model notices from the Department of Labor to use for the above purposes are available.
What steps should employers take?
Several questions remain unanswered about the new COBRA subsidies, and there is a need for more guidance. However, employers must act quickly to adhere to the new requirements.
They should take the following steps:
- Identify employees entitled to an extra COBRA election
- Develop, produce and deliver appropriate notices
- Consult with the plan’s COBRA administrator
- Implement programming and procedures for employees to participate in the subsidy program and execute new COBRA coverage elections.
- Coordinate with appropriate consultants to file the payroll tax credit
- Coordinate with appropriate consultants to review severance programs or any other existing COBRA subsidy arrangements.
What Notice Requirements Apply Under the ARP?
- General Notice of COBRA Premium Assistance
This notice applies to eligible beneficiaries who experience an involuntary termination of employment or a reduction in hours from April 1, 2021, to September 30, 2021.
- A Notice of a Special COBRA Election
The notice applies to eligible beneficiaries who experienced an involuntary termination of employment or a reduction in hours before April 1, 2021, and whose maximum COBRA election period (18 months) is yet to expire, i.e., every employee whose election period commenced after October 1, 2019.
Employers are required to send the notice only to the employees who meet the criteria listed above within 60 days from April 1.
- Notice of Expiration of COBRA Premium Assistance,
It includes advance notice of the expiration date for premium assistance and qualification for continued COBRA coverage incurred by a COBRA beneficiary. The employer must provide the notice 15-45 days before the individual’s premium assistance expiration date.
Employers who fail to satisfy COBRA continuation requirements could be subject to excise taxes. The tax can be up to $100 per eligible beneficiary, or $200 per family, for each day the employer violates the COBRA rules.
The DOL guidance is essential in providing employers, employees, and group health plans with missing information regarding COBRA subsidy notice requirements, eligibility, duration, and deadlines. Currently, expectations are that the IRS and Treasury will release additional guidance about the COBRA rules.
Want to learn more about the ARP Cobra Subsidy? Contact us with any questions that you have.