The American Rescue Plan Act of 2021 (ARPA), which was signed into law by President Biden on March 11, 2021, includes COBRA subsidy provisions that are significant – both for the individuals who will become eligible for COBRA subsidies and for the employers who will be required to subsidize COBRA coverage. The key requirements of the COBRA subsidies, which are effective beginning April 1, 2021, are outlined below.
Two important terms for understanding the COBRA subsidy provisions are:
- Subsidy Period. The Subsidy Period begins on April 1 and ends on September 30, 2021.
- Assistance Eligible Individuals. For COBRA subsidy purposes, Assistance Eligible Individuals are individuals who are eligible for COBRA coverage during the Subsidy Period due to a reduction in hours or involuntary termination of employment qualifying event, and enroll (or have already enrolled) in COBRA coverage. This includes individuals who are eligible for but have not yet elected COBRA to whom an extended timeframe to elect may apply.
COBRA Subsidy Requirements
ARPA requires employers that sponsor group health plan coverage1 to waive 100% of COBRA premiums for Assistance Eligible Individuals for periods of COBRA coverage that occur during the Subsidy Period. While the Subsidy Period runs until September 30, 2021, an individual’s right to the subsidy ends earlier in certain circumstances. Specifically, an individual’s subsidy right ends if the individual becomes eligible for other group health plan coverage (subject to certain exceptions) or Medicare or the individual’s maximum COBRA coverage period expires.
COBRA Special Election Period
ARPA requires employers that sponsor group health plan coverage to offer a COBRA special election period for two categories of individuals:
- Individuals who had a reduction of hours or an involuntary termination COBRA qualifying event prior to the Subsidy Period but who are not enrolled in COBRA coverage as of April 1, 2021.
- Individuals who enrolled in COBRA coverage prior to the Subsidy Period but discontinued coverage prior to April 1, 2021.
Employers are required to notify individuals who are eligible for the special election period no later than May 31, 2021, as described in Notice Requirements below. An individual’s special election period runs from April 1, 2021 until 60 days after the required notice is provided.
COBRA coverage for an individual who elects COBRA coverage during the special election period begins with the first coverage period (e.g., month) that starts on or after April 1, 2021. COBRA coverage can continue through the end of the individual’s original COBRA maximum coverage period (based on the initial COBRA qualifying event).
Optional Coverage Changes
In addition to the required COBRA subsidies and required COBRA special election period, ARPA permits employers to offer Assistance Eligible Individuals who are enrolled in COBRA coverage the opportunity to change to a different COBRA coverage option. Such a coverage change can be made if the following conditions are met:
- The different COBRA coverage option has an equal or lower premium cost than the COBRA coverage option in which the individual was enrolled at the time the COBRA qualifying event occurred.
- The different COBRA coverage option is a type of coverage that also is offered to similarly situated active employees.
- The different COBRA coverage option is not excepted benefit coverage, a qualified small employer health reimbursement arrangement, or health flexible spending account coverage.
- The individual makes an election to change COBRA coverage options within 90 days after the date the employer provides the individual with a notice of the ability to change COBRA coverage options.
ARPA imposes two additional notice requirements in connection with the COBRA subsidies and other COBRA relief:
- During the Subsidy Period, employers that sponsor group health plans must distribute COBRA election notices that have been revised or supplemented to include specific content explaining the COBRA subsidies, COBRA special election period, and COBRA coverage change opportunity (if applicable).
The revised COBRA election notices must be provided to (1) individuals who experience COBRA qualifying events during the Subsidy Period, (2) any Assistance Eligible Individuals who became entitled to elect COBRA continuation coverage before April 1, 2021, and (3) individuals who are eligible for the COBRA special election period (as described above). For individuals described in (2) and (3) above, the deadline to provide revised COBRA election notices is May 31, 2021.
The agencies will issue model COBRA election notices within 30 days after the enactment of ARPA.
- The plan administrators must notify an Assistance Eligible Individual receiving the COBRA subsidy when the COBRA subsidy is nearing its end date, unless the subsidy ends because the individual becomes eligible for other group health plan coverage or Medicare.
This notice must be provided to an Assistance Eligible Individual between 45 and 15 days before the date that the COBRA subsidy expires.
The agencies will issue model COBRA subsidy expiration notices within 45 days after the enactment of ARPA.
Employer Tax Credit
An employer that is required to subsidize COBRA coverage for Assistance Eligible Individuals during the Subsidy Period is eligible for a credit against the employer’s portion of Medicare taxes due for each quarter in which COBRA premiums are waived. The full amount of the COBRA premiums not paid by Assistance Eligible Individuals can be applied as a credit against the employer’s Medicare tax liability.
Considerations for Employers
Employers working to quickly implement the COBRA subsidies by the April 1, 2021 start of the Subsidy Period may want to consider the following:
- Coordinating with the COBRA administrator to ensure that COBRA election notices are updated with all additional content required by ARPA, and establish any needed procedures for determining an individual’s eligibility for the subsidy.
- Identifying any individuals who are eligible for the COBRA special election period and who therefore need to be notified.
- Deciding whether to allow COBRA coverage option changes as permitted (but not required) by ARPA.
- Defining the process for sending notices to Assistance Eligible Individuals when COBRA subsidies are nearing their expiration date.
- Working with the employer’s employment tax support when filing employment tax returns in order to properly report the amount of the COBRA subsidy tax credit.
Contact your Faegre Drinker benefits attorney with questions or for assistance with implementing the COBRA subsidies and other COBRA relief.
- The ARPA requirements apply to group health plan coverage that is subject to COBRA (other than health FSA coverage), as well as to coverage that is subject to state “mini-COBRA” laws.