To combat the effects of the COVID-19 pandemic, Congress passed and President Biden signed into law the American Rescue Plan Act of 2021 (ARPA). Among many other provisions, ARPA contains changes that significantly and immediately impact group health plans.
In particular, ARPA provides a subsidy for certain insurance premiums under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), an opportunity for specific individuals to enroll or re-enroll COBRA continuation coverage, and an option to select less expensive health coverage.
Some ARPA issues are not entirely clear, and additional guidance from the government is expected to help resolve these uncertainties.
- The American Rescue Plan Act provides for a 100 percent premium subsidy for certain former employees from April 1, 2021, to September 30, 2021, and provides a second chance for some individuals to elect COBRA health insurance coverage
- Employers will be responsible for complying with notice requirements for eligible employees during the premium subsidy period.
- Employers will be eligible for a refundable tax credit to offset amounts paid under the COBRA subsidy provisions of the American Rescue Plan Act
- We highly recommend reviewing the information on The Department of Labor webpage for the ARPA COBRA Premium Subsidy, which we expect to be frequently updated.
FREQUENTLY ASKED QUESTIONS
What is the COBRA premium subsidy under ARPA?
ARPA provides a COBRA premium subsidy from April 1, 2021, to September 30, 2021 (the Subsidy Period) for each assistance eligible individual (AEI). The subsidy covers 100% of any otherwise applicable COBRA premium (including the 2% administrative fee) during the Subsidy Period. This subsidy’s practical effect is that each AEI will receive free COBRA continuation coverage during the Subsidy Period.
Who is eligible for the COBRA premium subsidy?
Only AEIs are eligible for the COBRA premium subsidy. ARPA defines an AEI as a COBRA qualified beneficiary who meets the following requirements during the period from April 1, 2021, through September 30, 2021:
- Is eligible for COBRA continuation coverage because of a qualifying event that is a reduction in hours (such as reduced hours due to change in a business’s hours of operations, a change from full-time to part-time status, taking a temporary leave of absence, or an individual’s participation in a lawful labor strike, as long as the individual remains an employee at the time that hours are reduced) or an involuntary termination of employment (not including voluntary termination); and
- Elects COBRA continuation coverage.
However, you are not eligible for the premium assistance if you are eligible for other group health coverage. This includes a new employer’s plan or a spouse’s plan (individuals and employers should consult the most up-to-date guidelines from the DOL to confirm eligibility based on your unique circumstances). Further guidance is still expected.
Does ARPA extend the COBRA election period?
Yes, ARPA provides for a “special election,” which extends the period during which an individual who declined or dropped COBRA continuation coverage may enroll or re-enroll. The individual may elect COBRA during the period beginning April 1, 2021, and ending 60 days after he or she receives notice of the enrollment right. This extended election period does not change the maximum period of COBRA continuation coverage, which would still run from the date of the COBRA qualifying event. Payments for April premiums may be required to be refunded.
What types of benefits does the COBRA premium subsidy cover?
The COBRA premium subsidy applies to all group health benefits (e.g., medical, dental, and vision coverage). The subsidy does not apply to flexible healthcare spending arrangements (Health FSA).
When does the Subsidy Period end?
The Subsidy Period runs from April 1, 2021, to September 30, 2021. The Subsidy Period may end sooner if the AEI becomes eligible for coverage under any other group health plan or Medicare. Likewise, the Subsidy Period will end early if the AEI reaches its maximum COBRA continuation coverage period.
Note that the Subsidy Period will not end early if the AEI is eligible for coverage consisting only of excepted benefits, coverage under a Health FSA, or coverage under a qualified small employer health reimbursement arrangement (QSEHRA).
The AEI must notify the group health plan if their Subsidy Period should terminate early on account of other coverage and be subject to penalties for noncompliance.
How is the COBRA premium subsidy administered?
The applicable employer, group health plan, or insurer must fully subsidize the COBRA premium during the Subsidy Period. This expense will be reimbursed via a dollar-for-dollar tax credit. More guidance is expected on the mechanics of applying for and receiving reimbursement for the subsidized coverage.
If an AEI pays a premium for COBRA continuation coverage during the Subsidy Period, such premium must be refunded or reimbursed within 60 days.
Is the COBRA premium subsidy taxable to the individual?
No, the COBRA premium subsidy under ARPA is not taxable to the individual.
Does ARPA permit an AEI to enroll in different coverage options?
Yes, ARPA allows (but does not require) employers to permit AEIs to enroll in different coverage options if specific requirements are met. In particular, the premium for the alternative coverage may not exceed the premium for the coverage in which the AEI was already enrolled, and the alternative coverage must be offered to similarly situated active employees. The alternative coverage may not provide only excepted benefits or be a Health FSA or QSEHRA.
What notice obligations does ARPA impose?
ARPA requires notices to be distributed that describe the availability of the COBRA premium subsidy, the extended election period and, if applicable, the option to enroll in different coverage. The government is required to issue a model notice for this purpose no later than April 10, 2021.
In general, the notice must contain:
- A description of the forms necessary for establishing eligibility for the premium subsidy
- Contact information for the plan administrator
- A description of the extended election period
- A summary of the individual’s obligation to notify the plan if the Subsidy Period will end early due to other coverage
- A description of the right to receive a subsidized premium
- An explanation of any right to elect to enroll in alternative coverage options (if offered by the plan).
ARPA also requires that AEIs be notified no later than 15 days and no earlier than 45 days before the Subsidy Period ends. This notice must indicate that unsubsidized coverage may be available. The notice is not required if the Subsidy Period ends because the AEI becomes eligible for other health coverage or Medicare.
What Should I Do Next?
Employers should familiarize themselves with these rules quickly to answer employee questions and provide the required notices. Employers can review the DOL website referenced above for the model notices and start to review their COBRA records to determine which groups of qualified beneficiaries might be AEIs that qualify for both the extended enrollment period and a premium subsidy versus eligible beneficiaries who may be able to enroll as of April 1 but who do not qualify for a premium subsidy.
Employers may also consider how these new rules impact any ongoing or planned terminations, including layoffs, furloughs, severance agreements, and buy-outs.