On March 11, President Biden signed the American Rescue Act Plan of 2021 (ARPA) into law.
Subsidy Overview
The sweeping $1.9 trillion package includes a range of policies to provide additional pandemic relief. Among the provisions of the most interest to employers, ARPA provides for a 100% COBRA subsidy for up to six months for anyone who lost health coverage because of an involuntary termination or involuntary reduction in hours. ARPA also provides a “second chance” election for those who did not initially elect COBRA or who let their COBRA coverage lapse.
ARPA subsidies cover the full cost of COBRA or State Continuation premiums from April 1, 2021, through Sept. 30, 2021, for employees (and their qualifying family members), if the employee lost or loses group health insurance due to an involuntary job loss or reduction in work hours. The subsidy applies to people who are still within their original COBRA or State Continuation coverage period, for the length of that coverage period, even if they declined or dropped COBRA or State Continuation coverage earlier.
The subsidy does not apply to:
- Individuals whose job loss was voluntary or the result of gross misconduct; or
- Individuals who are eligible for another group health plan or Medicare.
The subsidies are funded through a payroll tax credit. Employers are required to provide new notices about the subsidy to employees. The U.S. Department of Labor (DOL) will issue model notices for this purpose.
Covered Plans
The COBRA subsidy in the ARPA applies to group health plans subject to federal COBRA or to a State Continuation program. Plans subject to federal COBRA are plans maintained by employers with 20 or more employees on more than 50% of the business days in the previous calendar year. Small-employer plans, small governmental plans and church plans are not subject to federal COBRA, but may be subject to a state State Continuation law and therefore be covered by the ARPA’s COBRA subsidy provisions.
Health flexible spending arrangements under Section 125 cafeteria plans are not covered by the ARPA COBRA subsidy.
Eligible Individuals
Individuals are eligible for the COBRA subsidy if they:
- Are a qualified beneficiary of the group health plan; and
- Are eligible for COBRA or State Continuation coverage because of the covered employee’s involuntary termination (unrelated to gross misconduct) or reduction in hours of employment.
The subsidy is not available for people who voluntarily left their job. It is also unavailable for people who are eligible for Medicare or another group health plan, not including:
- A plan covering only excepted benefits;
- A qualified small employer health reimbursement arrangement; or
- A flexible spending arrangement.
Furthermore, individuals receiving a COBRA subsidy who become eligible for a group health plan or Medicare must inform the health plan for which they are receiving the subsidy of that fact, or face a penalty. The premium subsidy is not counted as gross income.
Extended Election Period
The ARPA allows individuals to elect subsidized COBRA if they:
- Become eligible for COBRA or State Continuation due to involuntary job termination (not caused by gross misconduct) or reduction in hours between April 1 and Sept. 30, 2021;
- Previously declined COBRA or State Continuation after becoming eligible due to involuntary job termination (not caused by gross misconduct) or reduction in hours, but would still be within their COBRA or State Continuation coverage period had they elected the coverage at that point; or
- Previously elected COBRA or State Continuation but discontinued the coverage before April 1, 2021.
The election period for subsidized COBRA under ARPA begins on April 1, 2021, and runs until 60 days after the date individuals receive notice from the health plan of the availability of the COBRA subsidy.
Switching Coverage
The ARPA contains a provision that—at the employer’s option—allows individuals eligible for the COBRA subsidy and enrolled in the employer’s group health plan to change to different health coverage also offered by the employer. The new coverage cannot have a higher premium than the individual’s previous coverage, and it must be offered to similarly situated active employees. The option does not apply to plans that provide only excepted benefits, to qualified small employer health reimbursement arrangements or to health flexible spending arrangements.
The change must be elected within 90 days of the employee receiving notice of the option.
What You Need To Do
If you are currently using a COBRA Services provider, they will contact you about your options. If you are using a COBRA services provider and have not heard from them, please reach out to them as to how they are going to provide the required notices. If you are not using a COBRA Services provider, or if you offer state continuation, you, the employer, will be responsible for meeting the requirements under ARPA.
