The recently enacted American Rescue Plan Act of 2021 (ARPA) contains a number of financial aid measures to help Americans coping with the economic fallout of the COVID-19 pandemic, including a 100% subsidy of COBRA continuation coverage premiums for a period of up to six months. The subsidy provisions are set forth at Title IX, Subsection F of ARPA, Section 9501, titled “Preserving health benefits for workers.” The following fast facts on the COBRA subsidy will help employers and benefit advisors prepare for more detailed guidance and model notices that are soon to follow from the Department of Labor.
- The subsidy is first available April 1, 2021 and ends, unless terminated earlier as described below, on September 30, 2021 (the “subsidy period,” as used herein). The subsidy covers 100% of COBRA premiums, including the 2% administrative fee, for medical, dental and vision coverage during that time. It does not apply to continuation coverage under a health flexible spending account.
Assistance Eligible Individuals
- The subsidy applies to “assistance eligible individuals.” This means someone who is eligible for continuation coverage during some or all of the subsidy period, by reason of an involuntary termination of employment or a reduction of hours. The subsidy would also appear to apply to that person’s dependents.
- The subsidy is not available to those who resign or voluntarily quit employment.
- The change in employment status need not be directly related to COVID-19. The usual exception for termination due to gross misconduct applies, but remember that that exception is applied sparingly.
Extended Election Period
- Under a special extended election period, the subsidy is available not only to assistance eligible individuals who newly become COBRA eligible as of April 1, 2021, but also to persons who earlier declined COBRA, or elected COBRA but let it expire. For instance, this group may include assistance eligible individuals who first became COBRA on or after November 1, 2019 (April 2021 would be the 18th month of COBRA coverage).
- The subsidized continuation coverage would apply prospectively only, in such instance.
- A notice of the extended election period must be provided, triggering a 60-day period to elect to re-instate COBRA . The Department of Labor is required to provide a model notice within 30 days of the March 11 ARPA enactment date.
Option to Change Coverage
- Assistance eligible individuals may receive the subsidy for the same coverage they were enrolled in at the time of their qualifying event, or they may elect a different coverage option so long the applicable premium does not exceed the premium for the coverage they had at the time of the qualifying event. This is an optional feature of the subsidy provisions and an employer may choose not to extend the option to change coverage.
Termination of Subsidy Period
- The subsidy period will end prior to September 30, 2021 in the event the assistance eligible individual’s maximum COBRA period ends (for instance, with regard to someone who made a special extended COBRA election).
- Alternatively, it will end when an assistance eligible individual becomes eligible for coverage under another group health plan, or becomes eligible for Medicare.
- Eligibility under other group coverage or Medicare triggers a duty to notify the group health plan providing the COBRA subsidy. The Department of Labor will further define the form and timing of the notice.
- A $250 penalty applies to each failure to provide the notice, and a higher penalty, equal to 110% of the applicable COBRA premium, may apply to an intentional failure to notify. An exception to the penalty applies in the case the failure to notify was due to reasonable cause and not willful neglect.
- ARPA requires an update to COBRA notices sent to assistance eligible individuals who first became eligible for COBRA before the subsidy period, describing the premium assistance and the option to enroll in different coverage, if that latter option is extended by the employer, as well as the duty to provide notice of eligibility for other group coverage or Medicare. The deadline to provide the new information is 60 days from April 1, 2021.
- This information must also be added to new COBRA qualifying event notices for assistance eligible individuals. The new information may either be provided as part of amended qualifying event notices or in a separate document provided with the qualifying event notice.
- As mentioned above, a special notice about the extended election period must be provided, and triggers a 60-day election period. If the option to choose different coverage of an equal or lower premium is extended, an additional 30-day election period, for a total of 90 days, applies.
- Advance notice of the expiration of the subsidy period is also required to be provided. The Secretary of Labor will provide a model notice no later than 45 days from the March 11 enactment date.
Subsidy is Not Taxable Income
- The dollar value of the COBRA subsidy is excluded from the gross income of assistance eligible individuals.
Payment for Subsidy: Credit Against Medicare Taxes
- The person to whom COBRA premiums are payable will be entitled to reimbursement for the subsidy, in the form of a credit against the Medicare component of Social Security taxes.
- The employer is the person to whom premiums are payable, and who may claim the credit, in the case of a self-insured plan or an insured plan subject to federal COBRA It is the plan itself in the case of a multiemployer plan.
- If the credit exceeds taxes payable the excess is treated as a refundable overpayment.
- ARPA allots $10 million to the Department of Labor to help implement the COBRA subsidy, enabling it to provide outreach in the form of public education and enrollment assistance to employers, group health plan administrators, and other stakeholders.
The above information is provided for general informational purposes only and does not create an attorney-client relationship between the author and the reader. Readers should not apply the information to any specific factual situation other than on the advice of an attorney engaged specifically for that or a related purpose. © 2021 Christine P. Roberts, all rights reserved.
Photo Credit: Marten Bjork, Unsplash
If an individual has enrolled in a marketplace plan and that plan coverage has begun, can that individual drop the marketplace plan and come back to elect COBRA and get the subsidy?
I don’t know a lot about individual coverage but I suspect that free COBRA coverage would be affordable, minimum value or higher coverage that would disqualify someone from receiving premium tax credits. I am guessing any effort to double dip on the COBRA subsidy and premium tax credits will be disallowed in future guidance.