Authored by: Emily Ahluwalia, MSIO, SHRM-CP
In an effort to combat the effects of the COVID-19 pandemic, Congress passed into law the American Rescue Plan Act (ARPA). ARPA was signed into law on March 11, 2021 and includes a 100% COBRA premium subsidy for eligible individuals for a six-month period beginning April 1, 2021 and ending September 30, 2021.
An eligible individual is an employee who has lost coverage under their employer’s health care plan due to a reduction in hours or involuntary termination (for reasons other than gross misconduct) and was in his/her COBRA election window beginning in November 2019 or later. It includes eligible employees and covered dependents who (I) are already enrolled in COBRA, (II) did not elect COBRA initially, or (III) elected COBRA coverage initially, but let it lapse. The COBRA subsidy does not apply to employees who voluntarily terminated their employment.
While this special enrollment extends the COBRA election period, ARPA does not extend the maximum COBRA coverage, which is generally 18 months. If a former employee’s 18-month COBRA coverage starts after April 1, 2021, or ends before September 30, 2021, the subsidy will be shorter than six months. For example, if an employer terminated an employee on January 1, 2020, and the employee became eligible for COBRA coverage on February 1, 2020, the employee’s 18-month COBRA period would end July 31, 2021. In this circumstance, the ARPA COBRA subsidy would only be available for four months. In addition, individuals are not eligible for the ARPA COBRA subsidy if they are either eligible for coverage under another employer’s group health plan or under Medicare.
The ARPA COBRA subsidy is provided by the federal government. The eligible individual does not pay the premiums. The COBRA premiums must be paid upfront by the employer, insurer, or plan administrator. The COBRA subsidy is equal to the entire cost of COBRA premiums for eligible coverage and may possibly include an administrative surcharge (generally 2%). The new requirements apply to group health plans subject to COBRA (fully and self-funded), multi-employer (union-sponsored) plans, and governmental employer plans as well as health plans subject to similar continuation coverage requirements under applicable state laws. Although not entirely clear, these requirements do not apply to vision and dental plans as well as health reimbursement arrangements. The employer will then be reimbursed through tax credits that are fully refundable FICA tax credits and determined each calendar quarter that full premiums are not paid by eligible individuals.
Employers must inform eligible individuals of this new benefit and allow them to elect coverage during the special enrollment period that begins on April 1, 2021 and ends 60 days after the delivery of the COBRA notification. As stated previously, employers need to look back to November 2019 to identify qualified employees, spouses, and dependents who may still be entitled to elect COBRA and notify them of the special enrollment opportunity. ARPA requires that employers send a notification to all eligible individuals by May 30, 2021. Model notifications will be published on the Department of Labor website. In addition, a notice must be sent prior to the expiration of COBRA subsidy. Plan sponsors must notify eligible individuals no less than 15, and no more than 45 days before their subsidy ends.
The ARPA COBRA subsidy will require some time and resources to implement and administer. Employers should consider consulting with legal counsel to determine COBRA subsidy obligations under the ARPA subsidy, including its effect on employers’ severance programs. Employers also will need to coordinate with their health plans and third-party administrators to update COBRA notices to comply with the ARPA obligations and monitor the responses of eligible former employees to this new program. Given that we are still waiting for additional guidance and information from governmental agencies, now would be a good time to prepare to review your COBRA notices and procedures to avoid any issues.