The American Rescue Plan Act of 2021 (“ARP”) provides certain individuals with subsidized COBRA continuation coverage for up to six (6) months between April 1 and September 30, 2021 (the “Premium Assistance Period”). Under ARP, the employer or plan administrator fully subsidizes the cost of COBRA continuation coverage for assistance eligible individuals (“AEIs”). The U.S. Department of Labor (“DOL”) has published information and frequently asked questions about this COBRA subsidy.
The subsidy applies to group health plans under COBRA (which applies to employers with 20 or more employees) and under state laws (mini-COBRA, which applies to employers with fewer than 20 employees).
As explained below, employers or plan administrators are required to provide notice of the subsidy to COBRA-eligible individuals. The DOL has made available model notice forms that employers may use to fulfill this notice requirement.
Eligibility: AEIs are employees and beneficiaries of employees who lost their group health plan coverage due to a qualifying event (i.e., reduction of work hours or involuntary termination of employment), and qualify for COBRA coverage between April 1, 2021 and September 30, 2021. AEIs include individuals who (i) experienced a qualifying event prior to April 1 and elected COBRA, and whose coverage has not yet expired; (ii) experienced a qualifying event prior to April 1 and did not elect COBRA but would be eligible for COBRA during the Premium Assistance Period had they elected COBRA; or (iii) experienced a qualifying event prior to April 1, elected COBRA and discontinued coverage but would be eligible for COBRA during the Premium Assistance Period had they not discontinued coverage.
Individuals are not eligible for the premium assistance if they voluntary terminated their employment, if their employment was terminated for gross misconduct, or if they are eligible for other group health coverage or Medicare. Individuals receiving premium assistance must notify their health insurance plans if they become eligible for coverage under another group health plan.
Extended Election Period: Individuals who experienced a qualifying event and either did not elect COBRA, or elected COBRA and discontinued coverage, but would otherwise have been covered during the Premium Assistance Period, have a second chance to elect COBRA. Those individuals may elect COBRA and seek the subsidy going back to April 2021. It is important to note that the extended election period does not extend the total number of months (18) of an individual’s COBRA continuation coverage.
Notice of Subsidy: Employers or plan administrators are required to provide the following notices to COBRA-eligible individuals:
- General notice about the COBRA subsidy to individuals who have a qualifying event (reduction in work hours or involuntary termination of employment) during the Premium Assistance Period. Employers or plan administrators may include this information with the COBRA election notice sent to terminated employees or send it separately.
- By or before May 31, 2021, notice of the subsidy to individuals who are covered by COBRA during the Premium Assistance Period.
- By or before May 31, 2021, notice of the extended election period to AEIs who have a second chance to elect COBRA as of April 1, 2021.
AEIs must elect COBRA continuation coverage within 60 days of receipt of the relevant notice or forfeit their right to premium assistance.
Notice of Discontinuance of Subsidy: Employers or plan administrators are required to send, fifteen (15) to forty-five (45) days before an AEI’s COBRA premium assistance expires, a notice informing the AEI of the expiration of the subsidy, including the date of expiration, and the AEI’s option to continue COBRA coverage at the individual’s own expense.
Tax Credit: Employers and plan administrators will be reimbursed for the premium subsidy through a tax credit. Future guidance from the Internal Revenue Service (“IRS”) will hopefully provide more details and information to employers regarding these reimbursable tax credits.
For additional information and questions on the COBRA premium subsidy provided through the American Rescue Plan Act of 2021, please contact Chaim Book at cbook@mb-llp.com or Sheryl Galler at sgaller@mb-llp.com.
