On March 11, 2021, President Biden signed the $1.9 trillion dollar stimulus package, known as the American Rescue Plan Act of 2021 (ARPA), into law. In order to assist employees with the cost of health coverage, ARPA includes a six-month COBRA premium subsidy whereby the federal government subsidizes 100% of the COBRA premium during the period of April 1, 2021 through September 30, 2021.
Eligibility for the subsidy
The subsidy will be available to any employees (and their family members) who experience a loss of their health coverage due to their job loss or reduction in hours. However, the subsidy will not be available if the employee voluntarily terminates employment or is terminated for gross misconduct. An eligible individual would need to be:
Length of the subsidy
The subsidy lasts for up to six months unless the individual’s maximum COBRA coverage period ends before September 2021. The subsidy could also end earlier if the individual becomes eligible for coverage under another group health plan or Medicare. Individuals are required to notify their group health plan if they become eligible for such coverage or face penalties for failing to do so. Eligibility for excepted benefits, such as limited-scope dental or vision coverage or a health flexible spending arrangement, would not terminate subsidy eligibility.
Plan enrollment option
Under ARPA, employers have the option to give subsidy-eligible employees up to 90 days (following notice of this new enrollment option) to elect to enroll in a different group health plan offered by their employer. If the employer elects to implement this option, the following restrictions apply:
New notice requirements for employers
ARPA requires group health plans to provide an election notice which includes an additional notification about the availability of the new subsidy to any individual who becomes eligible to elect COBRA between April 1, 2021 and September 30, 2021. This notice would also have to include information about the plan enrollment option if implemented by the employer. Additionally, employers will be required to provide a revised COBRA election notice to anyone eligible for a subsidy who incurred a loss of coverage prior to April 1, 2021. This notice will be due within 60 days of April 1, 2021. To assist with this obligation, the Department of Labor (DOL) will issue model notices within 30 days of ARPA’s enactment.
Group health plans also must notify individuals if their subsidy will terminate before September 30, 2021. This notice must be provided between 15 to 45 days before the termination of the subsidy. This notice would not be required if the subsidy will terminate due to the individual’s eligibility for other coverage. Again, the DOL will issue a model notice for this requirement within 45 days of ARPA’s enactment.
Paying for the subsidy
In general, the subsidy will be paid to the insurance provider, multiemployer plan or self-insured plan sponsor as a credit against quarterly payroll taxes. Governmental plans are eligible to receive the credit too. If the credit exceeds the amount of payroll taxes due, the credit would be refundable and treated as an overpayment. The credit may also be advanced under future rules established by the Treasury Department.
Action items for employers
While waiting for the model notices from the DOL, plan sponsors should consider the following action steps: