THE COBRA SUBSIDY UNDER THE ARPA: WHAT YOU NEED TO KNOW

The American Rescue Plan Act (“ARPA”) created a COBRA subsidy that requires employers to cover 100% of the employee’s cost of continuing group health coverage under insured and self-insured plans subject to COBRA for up to six months if an employee 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 elects COBRA continuation. The subsidy period is between April 1, 2021 and September 30, 2021 and does not lengthen the COBRA period. Who are already enrolled in COBRA; or who did not elect COBRA when it initially became available to them; or who elected COBRA initially but let the coverage lapse; who are not eligible for coverage under another employer’s group health plan or under Medicare.

WHO IS ELIGIBLE?

Employees involuntarily terminated, including due to a reduction in hours, whose initial COBRA period ends (or would have ended if COBRA had been elected/did not lapse) either during or after this six-month period (lookback begins November 2019) AND For example, an employee terminated on December 15, 2020 became eligible for COBRA coverage on January 1, 2020, with the 18-month COBRA period ending June 30, 2021. So the ARPA COBRA subsidy would be available for three months only, because the 18-month COBRA coverage period expired during the ARPA COBRA subsidy window.

HOW DO EMPLOYEES ENROLL?

COBRA beneficiaries who have elected COBRA and are covered under COBRA on April 1,2021 need not enroll to be covered by the subsidy. For those eligible individuals who did not initially elect COBRA or who let COBRA lapse, there will be a special enrollment period under which employers must inform affected individuals of this new benefit and allow them to elect coverage during the special enrollment period that begins on April 1 and ends 60 days after the delivery of the COBRA notification.

WHO COVERS THE COST?

The ARPA COBRA subsidy is provided by the federal government, not the employer. However, under the ARPA, an employer must front any COBRA premium owed to a COBRA provider or plan administrator. Then, the government makes the employer whole by providing a dollar-for-dollar tax credit to the employer on the employer’s quarterly payroll tax filings.

WHAT TO DO RIGHT NOW

Review your termination records for all employees going back to November 1,2019 and determine who is potentially eligible for full or partial coverage under the new law. Update your COBRA notice for newly terminated employees with the new general notice. Send election notices to all former employees whose initial COBRA period ends (or would have ended if COBRA had been elected/did not lapse) either during or after the six-month period (from November 2019 through September 30, 2021) as soon as possible, but no later than May 30, 2021. Track your COBRA payments and consult with your tax attorney to receive your dollar-for-dollar tax credit.

*Notices can be found at https://www.dol.gov/agencies/ebsa/laws-and regulations/laws/cobra