The American Rescue Plan Act of 2021 (ARPA) was signed into law on March 11, 2021. One of the significant COVID-19 relief provisions in the bill includes a 100 percent COBRA premium subsidy so eligible individuals can continue getting health insurance for up to six months. The subsidy is available beginning April 1, 2021, and ends September 30, 2021 (the “Free COBRA Period”).
The following are some of the key provisions of the COBRA subsidy:
- Who is eligible? Individuals eligible for free COBRA premiums (called Assistance Eligible Individuals) include anyone whose employment is involuntarily terminated (other than for gross misconduct) or has a reduction in hours, and who is eligible for COBRA during the Free COBRA Period. In addition, Assistance Eligible Individuals include individuals who would otherwise be Assistance Eligible Individuals, but (i) who did not elect COBRA coverage or who elected but discontinued COBRA coverage before April 1, 2021, and (ii) are still within their maximum 18 month COBRA period (i.e., Assistance Eligible Individuals includes eligible individuals who experienced an involuntary termination or hours reduction as far back as November 1, 2019). Assistance Eligible Individuals who are not enrolled for COBRA coverage as of April 1, 2021, have until 60 days after receiving the required notice (discussed below) to elect coverage.
- When does the subsidy expire? Assistance Eligible Individuals will receive free COBRA premium coverage beginning on April 1 and ending on the earliest of the following: (i) September 30, 2021; (ii) the expiration of the individual’s maximum COBRA period; and (iii) the date the individual become eligible for coverage under another group health plan or Medicare.
- Required Notices: The COBRA subsidy provisions of ARPA create two new COBRA notice requirements (in addition to the standard COBRA eligibility notice). Plan administrators must provide notice to Assistance Eligible Individuals by May 30, 2021 that such individuals are eligible for the subsidy and to enroll (or enroll again) in COBRA during the subsidy period. A notice must also be provided to Assistance Eligible Individuals of the subsidy’s expiration between 45 and 15 days before the date such individuals are no longer eligible for premium free COBRA.
- Payment of Premiums and Reimbursement: Assistance Eligible Individuals enrolled in COBRA coverage are not charged COBRA premiums while eligible for premium free COBRA. Rather, during the subsidy period, the health care plan sponsor – typically the employer (or former employer) of the Assistance Eligible Individual – assumes the responsibility to pay COBRA premiums on behalf of the individual. Then, the employer can obtain reimbursement for any and all COBRA premiums paid on behalf of Assistance Eligible Individuals through a payroll tax credit. For credit amounts exceeding payroll taxes, the employer can apply for a refund of an overpayment.
- Optional Open Enrollment: ARPA allows plan administrators (at their discretion) to offer a 90-day “open enrollment” window in which a COBRA-covered (or eligible) individual could enroll in coverage, or switch to another employer benefit plan option, if offered.
Next Steps
The U.S. Department of Labor and the Internal Revenue Service (IRS) have been given authority to issue additional guidance on the COBRA subsidy (including model notices), which we will be following closely. If you have additional questions about the COBRA subsidy and how to ensure your plans are compliant with the provisions of the new law, please contact the Schiff Hardin Executive Compensation and Employee Benefits team.