The recently passed American Rescue Plan Act of 2021 (the “Act”) offers workers who lost health insurance due to involuntary termination of employment or a reduction in hours (and their eligible family members) a 100% COBRA premium subsidy for up to six months. Employers will need to swiftly take action to implement the Act’s COBRA subsidy provisions, and to claim related tax credits to offset COBRA premium costs.
How long is the subsidy period?
For eligible individuals, the 100% COBRA premium subsidy is in effect for the six-month period starting April 1, 2021 through September 30, 2021.
Who is eligible?
The Act defines an Assistance Eligible Individual (“AEI”), who may claim the COBRA subsidy. In general, an AEI is a qualified beneficiary (“QB”), who:
- Eligible for COBRA due to the involuntary termination of employment or reduction in hours; and
- Actually elects COBRA coverage.
In addition, an individual who previously declined COBRA or dropped COBRA and who would otherwise currently be eligible for COBRA if a COBRA election were in effect, is eligible for the COBRA subsidy if certain election requirements are satisfied.
What do AEIs receive?
- Each AEI is deemed to have satisfied the requirement to pay premiums for a maximum period of April 1, 2021 through September 30, 2021;
- AEIs who elected and are currently receiving COBRA coverage should have their premiums waived starting April 1, 2021;
- AEIs who previously dropped or declined COBRA coverage are allowed a window to elect coverage during the subsidy period; and
- The subsidy is available only so long as the individual remains eligible for COBRA. For example, the Act does not extend the availability of COBRA coverage beyond the 18 month period following the involuntary termination or reduction in hours.
When do these elections take place?
AEIs not currently on COBRA will have sixty days from the date they are notified by the employer of the availability of the COBRA premium subsidy to opt in. The Act directed the Department of Labor to publish model notices within 30 days of enactment, so it is likely that this guidance will be available by early April. Regardless of the date of DOL guidance, employers are required to notify AEIs of the availability of the election by May 31, 2021. A coverage election will be effective retroactive to April 1, 2021 and will expire not later than the end of the individual’s maximum COBRA coverage period; or, if earlier, September 30, 2021.
How must an employer prepare for compliance and recoup costs of the subsidy?
Employers should work with their COBRA vendors to prepare the notices described above for AEIs who have the opportunity to elect free coverage during the subsidy period. They should also work to modify existing notices for any individuals who become eligible for COBRA coverage during the subsidy period. In addition, employers should be prepared to send an additional notice to individuals whose subsidy is going to expire — the Act requires employers to notify each AEI no more than 45 days but no less than 15 days before his or her subsidy termination date. This notice must prominently list the date the subsidy will end and state that coverage may be available through unsubsidized COBRA or group health plan coverage.
The Act also provides a mechanism for employers to claim a refundable tax credit for any COBRA premiums waived as a result of the subsidy provision. This credit is claimed by employers through their quarterly Medicare tax filings as an offset to the liability the employer would otherwise have for Medicare taxes.
Other items for employers to consider
The Act permits, but does not require, employers who sponsor multiple tiers of medical coverage to allow individuals currently enrolled in COBRA an opportunity to elect a different tier of coverage. If an employer chooses to implement this provision, individuals may only select different coverage that is:
- An equally or less-expensive option – employers can’t allow individuals to choose a higher cost option.
- Available to similarly situated active employees.
- Not a health flexible spending account, a qualified small-employer health reimbursement arrangement or an excepted benefit.