Important COBRA Changes in the American Rescue Plan Act of 2021

Types : Alerts

The American Rescue Plan Act of 2021 (“ARPA”), among other things, subsidizes COBRA health insurance premiums for laid off workers for the period beginning April 1, 2021 through September 30, 2021. It also imposes upon employers various notice requirements, which require prompt action from employers to ensure compliance with ARPA’s benefits under COBRA.

ARPA provides for a 100% subsidy for COBRA premiums for assistance eligible individuals who lost their group health plan coverage because of an involuntary termination or reduction in work hours and who elect or who elected COBRA continuation coverage. In addition, an assistance eligible individual who does not have a COBRA election in effect on April 1, 2021 may elect COBRA continuation coverage. Thus, employees who were laid off during the past year will be eligible for the COBRA subsidy even if they dropped COBRA coverage or did not initially elect COBRA coverage after their termination. Employees who voluntarily resign from employment, and their dependents who lose coverage for any other reason, are not eligible for ARPA’s COBRA subsidy.

The extended period for election begins April 1, 2021 and ends 60 days after the date when notice is furnished to the eligible individual. COBRA coverage elected during the extended election period commences on or after April 1, 2021, but may not extend beyond a person’s original maximum coverage period.

An employer that sponsors a group health plan must provide the following three notices to all individuals who are eligible:

First, a notice of assistance availability must be given to all individuals who become eligible to elect COBRA coverage to inform of the availability of the subsidized coverage, plus an option to enroll in different coverage, if any, made available by the employer.  This notice must be given to individuals who become eligible between April 1, 2021 and September 30, 2021.  The notice requirement may be met by amending existing notices or providing a separate document.

Second, an employer must provide a notice to assistance eligible individuals of the extended election period within 60 days after April 1, 2021.

Third, an employer must provide a notice between 45 days and 15 days before the date a person’s subsidized COBRA continuation coverage will expire.

The federal government is required to publish model notices within 30 days of ARPA’s effective date that meet all three notice requirements. Any employer who fails to give the required notices is subject to a penalty of $250.00 for each failure. In the case of a failure that is viewed as fraudulent, the penalty is the greater of $250.00 per failure, or 110% of the premium assistance.

During this subsidy period, assistance eligible individuals are not required to pay any health insurance premiums. Employers, or in some cases, the health insurer or plan administrator must pay the premiums and are allowed a refundable credit against payroll tax equal to the premiums. The tax credit may be advanced in accordance with Internal Revenue Service instructions.

Employees benefitting from subsidiary assistance are not charged with taxable income equal to the subsidized COBRA premiums.

Montgomery McCracken’s Employee Benefits and Executive Compensation, Tax, and Labor and Employment attorneys are ready to assist with employers’ compliance with ARPA’s COBRA subsidiary and other provisions.