April 6, 2021 Employers’ Role in the Rescue – New COBRA Subsidy Requirement

The American Rescue Plan Act of 2021 (“ARPA”) contains several employer mandates, including a requirement to fully subsidize the cost of continuing health coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) for eligible individuals beginning April 1, 2021.

ARPA also requires that employers provide notice to former employees who may qualify for the subsidy by May 30, 2021. Thus, employers will need to act quickly to determine who will receive the notices.

How does ARPA impact an employer’s obligations under COBRA?

ARPA requires employers to fully subsidize the cost of continuing group health coverage under COBRA for up to six months for employees (and their covered dependents) who have lost coverage due to a reduction in hours or involuntary termination. 

Although the U.S. government will provide a dollar-for-dollar tax credit on the employer’s quarterly payroll tax filings, employers must pay the health insurance provider up front for the coverage. 

Which employers/plans are subject to the subsidy?

All employers subject to COBRA continuation requirements must provide the subsidy to eligible individuals.

The subsidy applies to both insured and self-insured plans subject to COBRA, as well as self-funded and insured plans that are not subject to COBRA but are subject to continuation coverage under state law such as Cal-COBRA.

Which employees are eligible for the subsidy?

Individuals who became eligible for COBRA because they were involuntarily terminated or had a reduction in hours at any time since November 1, 2019 and have a need for COBRA continuation coverage at any time between April 1, 2021 and September 30, 2021 are eligible for the subsidy.

Individuals who were eligible for COBRA continuation coverage due to involuntary termination or reduction in hours but who had not yet elected coverage as of April 1, 2021, or who had elected such coverage but discontinued it prior to April 1, 2021 (Extended Qualified Beneficiary), are also eligible for this subsidy. 

How long are former employees eligible for the subsidy?

The ARPA COBRA subsidy is limited to the period between April 1, 2021 and September 30, 2021.  Thus, eligibility for this subsidy only applies to individuals whose COBRA coverage includes some portion of this six-month subsidy period, which could include individuals entitled to COBRA as far back as November 1, 2019.

ARPA does not lengthen the COBRA coverage period (usually 18 months), so the subsidized period for an eligible individual may be shorter than six months, depending upon when an individual’s coverage period began.  For example, if an employee became eligible for COBRA coverage prior to April 1, 2021 (for example on February 1, 2020) the employee’s 18-month COBRA period would end July 31, 2021, and the subsidy would only be available for four months.  Similarly, if an employee’s eligibility began after April 1, 2021 (for example on August 1, 2021) the subsidy will only be available for two months.

Who is not eligible for ARPA COBRA subsidy?

Employees who were involuntarily terminated for gross misconduct or who voluntarily terminated their employment are not eligible for the ARPA COBRA subsidy. 

Additionally, individuals are not eligible if they are eligible for coverage under another employer’s group health plan or under Medicare.  Thus, employers should advise any individuals who are receiving the subsidy to notify it of any changes in eligibility status. 

Do eligible employees have to take any action to receive the subsidy?

COBRA beneficiaries who have elected COBRA and are covered under COBRA as of April 1, 2021 need not take any further action in order to be covered by the subsidy.

Those who fall in the category of Extended Qualified Beneficiary, either because they initially opted not to elect COBRA or who let COBRA lapse, are subject to a special enrollment period that begins on April 1, 2021 and ends 60 days after the delivery of the COBRA notification.

Does the employer have to pay 100% of the COBRA cost for the employee’s dependents?

Yes, the subsidization requirement under ARPA also applies to any dependents of employee who were covered under the plan at the time the employee became COBRA-eligible.

What are the notice requirements of ARPA?

There are two distinct notice requirements under the law.

First, ARPA requires employers to notify employees or former employees who qualify as an Extended Qualified Beneficiaries of this new benefit and of the special enrollment period.  Some employees in this category may have become COBRA eligible as far back as November 2019.  It is important that employers act quickly to identify these individuals, because notice must be provided no later than May 30, 2021.

Second, going forward, employers must notify employees who become COBRA eligible during the subsidy period (April 1 – September 30, 2021) that the COBRA premium assistance is available. This may be done either by amending existing COBRA notices or by drafting a separate written notice that meets the requirements of the law.

The Department of Labor is expected to issue model notices by April 10, 2021.

For more information, please contact one of the authors below or any other Paul, Plevin attorney by calling 619-237-5200.