COBRA Premium Assistance under the American Rescue Plan Act of 2021 requires employers to provide free COBRA coverage to eligible employees (and family members) between April 1, 2021 and September 30, 2021. Additional employer obligations are required during this period, including new COBRA election periods and notices. Employers will be reimbursed for the subsidized coverage through payroll tax credits.
Types of eligible coverage
- The subsidy applies to all plans subject to COBRA (medical, dental, vision, FSA, HRA etc.)
Who is eligible for subsidy
- must have a COBRA qualifying event that is a reduction in hours or an involuntary termination of a covered employee’s employment (other than for gross misconduct)
- must become eligible for COBRA before or during the Subsidy Period and make an election for COBRA coverage to be in place during the Subsidy Period
- must not be eligible for Medicare; AND
- must not be eligible for coverage under any other group health plan, such as a plan sponsored by a new employer or a spouse’s employer
Second COBRA election with subsidy opportunity
A second enrollment opportunity must be allowed for individuals who already had an involuntary termination of employment or reduction in hours within the last 18 months and did not timely elect COBRA or dropped COBRA. These individuals have a new 60-day election period following the date that they receive a new required COBRA notice.
- COBRA would begin for the above individuals on April 1, 2021 but will still end 18 months from the date they originally became eligible for COBRA
When does the subsidy end
The subsidy will end on the first applicable date:
- September 30, 2021
- The last day the beneficiary’s ordinary COBRA period (typically 18 months)
- The date of eligibility under another group health plan or Medicare (beneficiary is responsible for notifying the employer)
How is the subsidy funded and reimbursed
- COBRA beneficiaries eligible for the subsidy do not pay the premium or the 2% administrative cost during the subsidy period
- Employers will be reimbursed by the federal government through an employer tax credit against their quarterly payroll taxes.
- The law requires employers to update COBRA notices sent to assistance eligible individuals to describe the subsidy and to issue extended COBRA election notices within 60 days of the date of applicability.
- For individuals who became eligible for COBRA prior to April 1, 2021 must be provided this notice by May 31, 2021
- Employers also must provide a notice of expiration at least 15 days but not more than 45 days before the premium subsidy expires.
- Failure to to provide notices is treated as a failure of the COBRA notice requirements.
For more information and notices, DOL COBRA Premium Subsidy
Employers next steps
- Identify who has had an involuntary termination of employment or reduction in hours and is still within the 18-month COBRA period
- Send out the new notices, or work with your COBRA vendor, to ensure these individuals are provided the new notice and election forms
- Work with your payroll vendor to reflect the COBRA subsidy and for the necessary duration
- Prepare to provide the expiration notice for those whose coverage is expiring