American Rescue Plan Act - Employer Requirements
New COBRA Subsidy Requirements Under the American Rescue Plan Act
One of the unexpected provisions of the American Rescue Plan Act (ARPA) is a requirement that employers provide fully funded COBRA premiums for six months between April 1 and September 30, 2021. This subsidy requirement applies to all employer-sponsored plans covered by state and/or federal health insurance continuation laws.
Who is entitled to this benefit?
- Employees who lost health insurance coverage any time since November 2019, or those who will lose coverage between April 1 and September 30, 2021, because of involuntary termination (except for gross misconduct) or a reduction in hours.
- Eligible employees include those currently on COBRA and those who initially declined or who subsequently dropped COBRA coverage.
- Those who left employment voluntarily are not entitled to the subsidy.
- Employees who qualify for subsidized coverage and later become eligible for other coverage, such as through a spouse’s plan or after starting a new job with group health benefits, are no longer eligible for the subsidy.
What is the subsidy and who pays for it?
Employers pay 100% of the COBRA insurance premium for eligible employees and dependents between April 1 and September 30, 2021. Even though the normal COBRA period is longer, the subsidy only applies for the months of April through September 2021. The law requires employers to refund any COBRA premiums paid by employees during this period.
Employers recoup COBRA payments as a charge against Medicare payroll taxes they would otherwise have to pay quarterly. We expect the IRS to issue guidance on this process soon.
What notices must we provide to our eligible employees?
By May 31, 2021 employers must provide COBRA notices to eligible employees that include information about the subsidy and the special 60-day enrollment period, which begins April 1st and ends 60 days after delivery of the COBRA notice.
The law also requires employers to alert individuals taking the subsidy that the subsidy is close to expiration. This notice must be provided between 15 and 45 days before the subsidy ends. Employers should ensure they can prove all required notices were sent.
What steps should we take to comply?
- Identify all eligible individuals entitled to elect COBRA because of involuntary termination or reduction in hours, looking back to November 1, 2019.
- Include those who are currently on COBRA and those who could be on COBRA through September 2021, but who declined or dropped coverage.
- Send new COBRA notices to eligible employees by May 31st.
- Notice for qualified beneficiaries who have qualifying events for any reason from April 1, 2021 through September 30, 2021
- Notice for qualified beneficiaries currently enrolled in COBRA due to reduction in hours or involuntary termination, as well as those who would be eligible for COBRA coverage had they elected and/or maintained COBRA coverage (involuntarily termination or reduction in hours occurring prior to April 1, 2021)
- Alternative notice for insured coverage subject to state continuation requirements
- For those who elect coverage and receive the subsidy, send the additional required notice that the subsidy is near its end.
- Work with payroll advisors to properly claim the refundable tax credits on a quarterly basis.
- As with all employee benefits issues, discuss compliance with the new COBRA requirements, including which model notice to use, with your employee benefits attorney or insurance broker.
Information from the Department of Labor:
- Summary of the COBRA Premium Assistance Provisions under the American Rescue Plan Act of 2021
- Frequently Asked Questions