American Rescue Plan Act Provides COBRA Subsidies

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The American Rescue Plan Act of 2021 (“ARPA”) includes a valuable benefit for an employee who has lost (or loses) healthcare coverage due to an involuntary termination or reduction in hours — up to 6 months of free COBRA coverage for the employee and his or her qualified beneficiaries.

The Consolidated Omnibus Budget Reconciliation Act (COBRA) generally allows employees to continue to remain covered under their employer’s health insurance for up to 18 months (and sometimes longer) after coverage is lost because of a reduction in work hours or the employee’s termination of employment at the employee’s cost plus up to a 2% administrative fee.  Now, ARPA provides individuals and their beneficiaries who lost group health coverage during the COVID-19 pandemic (“assistance eligible individuals”) with the opportunity to receive 100% fully subsidized COBRA coverage for up to 6 months, from April 1, 2021 to September 30, 2021.  Employees who left (or leave) employment voluntarily are not eligible for the subsidized COBRA coverage. Likewise, employees who qualify for subsidized coverage but start a new job with group health insurance will no longer be eligible for the subsidy.

Under ARPA, the entity that normally is owed COBRA premiums (the employer, insurer or plan sponsor) must pay eligible employees’ COBRA premiums and assistance eligible individuals will be treated as having “fully paid” the applicable premiums. The entity that “advanced” the COBRA premium will then be reimbursed for the premium via a refundable quarterly payroll tax credit per forthcoming Department of Treasury rules.

ARPA also provides individuals with the opportunity to retroactively elect COBRA benefits effective as of April 1, 2021. Individuals who were COBRA-eligible and either declined or allowed their coverage to lapse will be provided with 60 days to elect COBRA coverage. Since assistance eligible individuals include those who had a qualifying event prior to April 1, 2021, qualified beneficiaries whose COBRA coverage triggered as far back as November 2019 could qualify for premium subsidies.  Employers are required to send notice to all such employees within 60 days informing them of their eligibility for premium assistance and the extended election coverage. The DOL will issue model notices on or before April 10, 2021.

Most employers outsource their COBRA administration, however, employers should become familiar with all of the ARPA’s requirements and ensure compliance with the applicable notices before the subsidies become effective on April 1, 2021.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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