American Rescue Plan: COBRA Subsidy Explained

Please note: This blog is current to the date of its publication, April 21, 2021. For more recent updates, contact SST’s experts

American Rescue Plan: COBRA Subsidy Explained

On April 7, 2021, the U.S. Department of Labor (DOL)  released “FAQS About Consolidated Omnibus Budget Reconciliation Act (COBRA) Premium Assistance Under the American Rescue Plan Act (ARPA).” Find an overview of the FAQs explained by SST below.

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  • The COBRA subsidy is available from April 1, 2021, through Sept. 30, 2021, to employees that experienced a reduction in their work hours or if they were involuntary terminated.
  • ARPA creates special COBRA enrollment election rights for eligible individuals that are not currently enrolled in COBRA, including:
    • Individuals that were COBRA eligible and initially declined to elect COBRA coverage after reduction in work hours or involuntary termination
    • Individuals that previously elected to receive COBRA coverage due to reduction in work hours or involuntary termination but discontinued coverage before April 1, 2021
    • Model notices for employers/plan administrators to use to advise qualified beneficiaries of their rights were released by the DOL on April 7, 2021
  • ARPA does not extend COBRA coverage past the end of what would have been the normal expiration date for the underlying COBRA coverage period (e.g. 18 months from the date of a covered employee’s termination of employment or reduction in work hours).
  • COBRA coverage will cease if an individual becomes eligible for other group health plan coverage (including under a spouse’s plan) or Medicare, regardless of whether the individual actually becomes covered under the other plan or Medicare.

As a next step, SST recommends employers take the following steps:

  • Identify all individuals who lost group health plan coverage due to involuntary termination or a reduction in work hours and are within their maximum coverage period. This period may be as far back as October 2019 for any individual with an 18-month maximum coverage period.
  • Coordinate with COBRA administrators to make sure that appropriate notices are sent to the eligible individuals when they are at the end of their subsidy period. COBRA administrators may be contractually obligated to send relevant COBRA notices. However, the plan administrator is ultimately responsible for compliance with COBRA.
  • To offset the costs of providing free COBRA coverage, the law makes available tax credits against employer Medicare taxes. The DOL FAQs do not provide any guidance regarding these tax credits. The IRS is expected to revise Forms 941 and 7200 to allow employers to claim the COBRA subsidy credit.

Find more information in the following trusted resources, or contact SST today for a custom assessment.