COVID Hardship Relief Includes Subsidized COBRA Coverage
March 22, 2021
The recently adopted American Rescue Plan Act of 2021 (ARPA) includes in its $1.9 trillion of relief spending reimbursement of the premium cost of COBRA continuation coverage for employees and their covered family members who lose their group coverage as a result of an involuntary termination of their employment or a reduced number of employment hours. These qualified individuals may be entitled to free COBRA continuation coverage during the six-month subsidy period period from April 1, 2021 through September 30, 2021.
Here are the highlights of the ARPA's COBRA subsidy:
(a) People who enroll in or become eligible for COBRA coverage between April 1 and September 30, 2021 can get the subsidy if they qualify and people who became eligible for COBRA earlier in the pandemic can still elect it. Normally, people have up to 60 days from their qualifying event to elect COBRA continuation coverage. During the pandemic, however, the new COBRA election deadline will be the earlier of (1) one year plus 60 days, or (2) 60 days after the announced end of the COVID National Emergency.
(b) People who became eligible for COBRA earlier in the pandemic can have coverage start prospectively. Normally, once elected, COBRA coverage dates back to the qualifying event and premiums have to be paid retroactive to that point in time. This will remain the rule for people whose qualifying event occurs on or after April 1, 2021. However, under the ARPA a special rule applies for subsidy-eligible individuals whose COBRA qualifying event was before April 1, 2021 and who have not yet elected COBRA; OR for such individuals if they previously elected COBRA but subsequently discontinued it, and who otherwise remain eligible for COBRA. When these individuals elect COBRA, coverage will start on April 1, 2021. Their COBRA coverage will not extend back in time before that date and they will not owe COBRA premiums prior to that date. Eligible individuals who were already paying for COBRA when the law passed can also claim the subsidy.
(c) COBRA premium subsidies are not counted as income to the individual. Subsidies will not affect a person’s tax liability or eligibility for other income-related benefits.
(d) The subsidies do not extend the usual maximum COBRA coverage period (typically 18 months) or override the termination of COBRA coverage when a qualified individual secures coverage under another group health plan or Medicare.
(e) COBRA premiums must be paid by employers and will be reimbursed by the U.S. Government. Employers will recover COBRA premium costs by means of a refundable payroll tax credit on Form 941. Qualified employees and their dependents will not have to make COBRA premium payments during the subsidy period or file for a premium refund.
(f) The availability of the COBRA subsidy does not require proof that the loss of group health coverage is directly tied to COVID impact on the qualified employee or members of the employee's household, unlike prior COVID relief provisions,.
Employers need to be ready to respond to inquiries from terminating employees about the ARPA premium subsidy program. Also, qualified employees who enrolled in COBRA coverage prior to April 1, 2021 are likely to ask about the new program. Employers should be prepared to advise employees, and former employees, about whether or not they have to pay COBRA premiums otherwise due in just two weeks on April 1. Although no formal notice requirements apply until after additional guidance is issued, employers should consider sending out a general notice to qualified individuals (including former employees) as soon as possible.