On March 12, 2021, President Biden signed into law the American Rescue Plan Act (ARPA). Importantly for employers, under the ARPA, any employee who is eligible for continuation of health insurance benefits pursuant to the Consolidated Omnibus Budget Reconciliation Act (COBRA) due to an involuntary termination (or reduction in hours) must be offered a subsidy to cover 100% of the cost to continue their health insurance coverage until the individual either: (1) becomes eligible for another group health insurance plan, (2) becomes eligible for Medicare, or (3) September 30, 2021. Thus, if a qualified individual accepts COBRA continuation of their health insurance benefits, employers must pay 100% of the individual’s health insurance premium until September 30, 2021 at the latest.
In addition, employers will need to identify every prior employee who was involuntarily terminated (or received a reduction in hours) and eligible for COBRA benefits in the past 18 months. Employers must offer those individuals free COBRA coverage starting April 1, 2021 until: (1) 18 months after the employee originally became eligible for COBRA benefits; (2) the individual became eligible for another group health insurance plan, or (3) the individual became eligible for Medicare.
The ARPA provides that employers can obtain payroll tax credits for the premiums they pay for these individuals.
Employers will be required to send specific COBRA notices to eligible individuals when they become eligible for free COBRA benefits or when benefits are about to expire. The Department of Labor will issue model notices for employers to use on April 10, 2021.
Employers will need to update their templates for severance and separation agreements to account for these new changes in the law.