Introduction. In mid-March, President Biden signed the American Rescue Plan Act of 2021 and included in its many provisions for providing COVID relief and economic stimulus is the six-month COBRA Premium Assistance (a/k/a COBRA subsidy). The COBRA subsidy must be provided to “assistance eligible individuals” for periods of COBRA health coverage beginning on or after April 1, 2021 and through September 30, 2021. During this period, assistance eligible individuals are not required to pay their COBRA continuation coverage premiums. An employer or plan providing COBRA coverage during this period is entitled to a refundable tax credit applied against an employer’s share of Medicare tax as reported and claimed on its IRS Form 941. Also, there are new COBRA notice requirements that accompany these new COBRA provisions. On April 7, 2021, the DOL issued its initial guidance and sample model COBRA subsidy notices here.
A List of “Must Do’s” for Employers.
- Gain an understanding of the new rules as soon as possible (see DOL guidance at link above)
- Determine who is responsible for preparing, sending, and documenting the required COBRA subsidy notices (eligibility notice, election forms, and expiration of COBRA subsidy notice)
- Review administrative service agreements with third parties who will be responsible for compliance with the new COBRA subsidy notice and make required amendments
- Determine how to best identify the assistance eligible individuals
- Who is an assistance eligible individual?
- Plan participants eligible for COBRA between April 1 and September 30 due to involuntary termination of employment or reduction in hours who elect COBRA
- Those who were eligible but have not year elected, previously declined or discontinued COBRA coverage (remember election period suspended by executive order until COVID national emergency declared over
- Who is NOT an assistance eligible individuals?
- Those who have voluntarily terminated employment
- Those who were terminated for gross misconduct
- Those who had a non-termination qualifying event (such as divorce)
- Provide the required COBRA subsidy notice by May 31, 2021 (those eligible prior to April 1st) and within 60 days (for those eligible after April 1st)
- Establish how to administer and who is responsible for the required accounting needed to provide the COBRA subsidy and to claim the corresponding tax credits on the IRS Form 941
A List of Important Items to Know About the COBRA Subsidy.
- The coverage provided for by the COBRA subsidy is not retroactive (in other words, the qualified beneficiary is not required to pay prior premiums for prospective coverage)
- The April COBRA premium is refundable if the premium has already been paid and must be refunded within 60 days
- The COBRA subsidy is NOT taxable income to the individual
- The COBRA subsidy can end prior to September 30, 2021 for an individual if the individual is eligible for other group health plan or Medicare coverage or if the individual’s maximum COBRA coverage period ends
- There are substantial financial penalties for failure to provide the required COBRA subsidy notices