The American Rescue Plan Act of 2021 (“ARPA”), the latest pandemic relief legislation, includes provisions intended to help individuals maintain employer-sponsored group health coverage lost due to the economic effects of the ongoing pandemic. Specifically, it requires employers who are subject to federal COBRA (or state “mini-COBRA” laws) to temporarily provide a full subsidy of COBRA continuation coverage premiums to certain employees and qualified beneficiaries1. These COBRA subsidies will then be reimbursed to the employer via federal quarterly payroll tax credits2.
The subsidy applies to COBRA premiums for coverage from April 1 through September 30, 20213.It does not extend the original COBRA maximum period and it is not yet clear how the subsidy will interact with earlier pandemic relief providing for extensions of various deadlines during the COVID-19 “outbreak period” that began on March 1, 2020.
Who Is Eligible for the Subsidy?
The COBRA subsidy is only available to Assistance Eligible Individuals (“AEIs”), generally defined as individuals and their beneficiaries who lose coverage due to an involuntarily termination of employment or a reduction in hours, and who are or could have been eligible for COBRA continuation coverage between April 1 and September 30, 20214. This includes individuals who declined or discontinued COBRA coverage prior to April 1 but whose COBRA maximum period otherwise would have continued beyond April 1. The job loss or reduction in hours does not need to be COVID-related.
The subsidy does not apply in the event an employee voluntarily terminates employment or experiences any other COBRA qualifying event, and does not cover an individual who is eligible for Medicare or other group health coverage.
How Does an AEI Elect Subsidized COBRA Coverage?
AEIs who become newly eligible for COBRA coverage must make the election during the normal 60-day window following notice of eligibility. AEIs who previously declined COBRA continuation coverage or who discontinued COBRA continuation coverage prior to April 1 have a special 60-day window to elect COBRA coverage that begins when they are notified of their eligibility.
When Does the Subsidy End?
An individual’s COBRA subsidy will terminate upon the earlier of (a) the individual becoming eligible for another group health plan, including Medicare (even if the AEI does not enroll in such other coverage), (b) the expiration of the individual’s COBRA period, or (c) September 30, 2021. Individuals must notify the plan if they become eligible for another employer-sponsored group plan or Medicare, subject to statutory penalties.
What Notices Must Employers Provide?
ARPA requires three types of employer notices relating to the COBRA subsidy:
- For all individuals who become newly eligible for COBRA on or after April 1, 2021 (not just AEIs), employers must provide a notice describing eligibility for the subsidy. This notice can be incorporated into the existing COBRA election notice or be provided as a separate supplemental notice.
- For AEIs who were previously eligible for COBRA coverage but declined or discontinued it prior to April 1, employers must provide notice of the 60-day special election period. These notices must be provided by May 31, 2021 and elections would be retroactively effective to April 1.
- Employers must notify each AEI of the subsidy’s termination 15 to 45 days prior to the expiration of that individual’s subsidy (unless the subsidy period ends due to the individual’s eligibility for other group coverage or Medicare).
ARPA includes specific content requirements for these notices. The Department of Labor is tasked with providing model notices, but as of today they have not been issued.
Action Items: What Do Employers Need To Do?
- Identify AEIs who qualify for the subsidy.
- Prepare and send required notices.
- Coordinate with insurance carriers if necessary to ensure coverage is continued for AEIs electing subsidized COBRA coverage.
- Submit claims for quarterly tax credits to receive reimbursement for any subsidies. More information regarding the logistics of this process should be forthcoming.
- Review any form severance agreements in use by the employer to ensure that references to COBRA payments are consistent with current law.
UPDATE - DOL GUIDANCE AND MODEL NOTICES ISSUED APRIL 7, 2021
On April 7, 2021 the Department of Labor (DOL) issued its initial guidance relating to ARPA’s COBRA subsidy, as well as model notices. The guidance, which is in the form of FAQs, clarifies many of the questions regarding how the subsidy should be implemented. The FAQs are available in full here.
The guidance clarifies some important aspects of the subsidy, including:
- Assistance Eligible Individuals (AEIs) include employees who lose coverage due to either a voluntary or involuntary reduction in hours. If the coverage is lost due to a termination of employment, the termination must be involuntary, but employees terminated due to gross misconduct would not be eligible (in line with existing COBRA rules).
- Individuals who are eligible for Medicare or other group coverage, including a spouse’s coverage, are not eligible for the subsidy.
- The COVID-19 “outbreak period” relief permitted under prior guidance does not apply to the COBRA subsidy.
The DOL’s model notices are available here. Employers are not required to use the model notices but they provide the most assurance of compliance with ARPA’s notice requirements. The model notices include:
- A general notice for individuals with COBRA qualifying events occurring from April 1, 2021 through September 30, 2021, including an election form.
- A summary of the subsidy provisions, to be attached to the general notice, including a confirmation of eligibility form.
- A special notice for AEIs entitled to a special 60-day election period because their maximum COBRA period had not expired by April 1, 2021 (regardless of whether the AEI currently carries COBRA coverage), including an election form.
- A subsidy expiration notice to be provided 15 to 45 days prior to the termination of the subsidy.
- An alternative notice intended for use by insured plans subject to state mini-COBRA requirements, including an election form.
ERISA and Employee Benefits / Employment & Labor
The DOL and IRS will likely issue guidance clarifying the changes made by ARPA. Should you have questions regarding this alert or other benefit or employment issues, please contact one of our ERISA/Employee Benefits or Employment & Labor attorneys.
 The premium subsidy includes the 2% administrative fee (if applicable).
 For simplicity this Alert refers to “employers” throughout, but the entity funding the COBRA subsidy is the entity entitled to the tax credit. In some cases this may be an insurer or third-party administrator rather than the employer.
 Employers must refund any premiums paid by AEIs for coverage during this period within 60 days of the date the payment is made.
 ARPA does not define what constitutes a voluntary or involuntary termination. It is also not clear whether it limits the subsidy to employees who experience an involuntary reduction in hours.