American Rescue Plan Act of 2021 Creates a 100% COBRA Premium Subsidy

Purpose

We want to alert clients to the provision in the American Rescue Plan Act of 2021 which creates a 100% COBRA premium subsidy available from April 1 until September 30 for group health plan participants who have lost their coverage due to an involuntary termination of their employment or a reduction in hours. The COBRA subsidy applies to any group health plan subject to the federal COBRA laws as well as to group health plans subject to state “mini-COBRA” laws. Thus it can apply to large as well as small employers.

Payment and Reimbursement of the Subsidy

The COBRA subsidy is paid by the employer for single employer plans, by the plan for a multiemployer plan, and by the insurer of a fully insured plan, but the payment will be reimbursed by the federal government as a credit against quarterly payroll taxes. If the credit amount exceeds payroll taxes it will be paid as refund of an overpayment.

Eligibility and Termination

Very briefly, individuals as well as their dependents who are still within their maximum COBRA coverage period as of April 1, 2021, and who did not elect COBRA when they were first eligible, or who elected COBRA but terminated it prior to April 1, are eligible to elect coverage now and get the subsidy. Individuals terminated between April 1 and September 30 are also eligible. The subsidy will end the earlier of :

1. September 30, 2021,
2. when the individual reaches the end of his or her maximum COBRA coverage period, or
3. when the individual becomes eligible for coverage under Medicare or another group health plan.

Notice Requirements

Notice of COBRA subsidy eligibility must be provided to individuals who first became eligible for COBRA coverage due to an involuntary termination or reduction in hours before or after April 1 and who are still eligible to elect coverage and get the subsidy. Notice must be provided no later than May 31, 2021. Model notices are currently being developed by the DOL. COBRA subsidy eligible individuals must also be provided with a notice that their subsidy is about to end and that they may be eligible for other coverage.

Enforcement

Exactly who and how the COBRA subsidy will be enforced is an open question.