On Wednesday, March 10, 2021 Congress approved the American Rescue Plan Act (ARPA), which was subsequently signed into law by President Joe Biden. ARPA includes many provisions for COVID-19 Disaster Relief such as a $1.9 trillion economic stimulus, designed to stabilize our economy amid the COVID-19 pandemic. In the stimulus are also key provisions that affect employee benefits, including the COBRA premium Subsidy.
COBRA Subsidy Overview:
100% COBRA Premium Subsidy
The American Rescue Plan Act (ARPA) provides a 100% Federal subsidy of COBRA coverage premiums that ex-employees would otherwise pay out of pocket. The plan allocates $10 billion to fully-fund up to 6 months of COBRA coverage for certain qualified beneficiaries. The COBRA subsidies will be available to fund entire COBRA premiums beginning April 1, 2021 through September 30, 2021.
The relief is intended for those who lost medical coverage under a group health plan, due to their or their family member’s involuntary termination of employment due to job elimination, layoff, or termination. To be eligible for the subsidy, an individual must be eligible for COBRA because of an involuntary termination of employment. It is not meant for individuals who voluntarily terminated employment (nor other types of events such as dependent qualifying events). These individuals are referred to as “Assistance Eligible Individuals”.
The subsidy remains available as long as: (1) the qualified beneficiary does not become eligible for coverage under an employer-sponsored plan or Medicare, and (2) the qualified beneficiary is still in their original 18-month COBRA coverage period.
The ARPA subsidy does not require that COBRA coverage be continuous, thus providing qualified beneficiaries with a second opportunity to elect coverage. Meaning, if an ex-employee did not elect COBRA initially upon termination, under the new rules, that individual is permitted to elect COBRA effective April 1, 2021. This new election right would also apply if that individual had elected coverage for several months following their original election date and subsequently dropped that coverage.
Plan sponsors (employers) of self-insured health plans are entitled to claim the ARPA COBRA subsidy as payroll tax credits to be passed down to COBRA enrollees. In the case of a fully-insured health plan, the insurance carrier is entitled to the credit. In the case of a multi-employer (union-sponsored) health plan, the plan is entitled to the credit.
A model COBRA notice that complies with the new regulations, and more details on exactly how to claim the credit should become available in the upcoming weeks.