Mar 12, 2021

Prompt Action by Employers Required for COBRA Changes in the American Rescue Plan Act

On March 11, 2021, President Biden signed into law the “American Rescue Plan Act” (“ARPA”) (HR 1319). While ARPA addresses many different areas, employers will need to act promptly with regard to benefits under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”).

COBRA Subsidy

“Assistance eligible individuals” will be eligible to receive a 100 percent subsidy for their COBRA continuation coverage premiums from April 1, 2021 through September 30, 2021 (i.e., they will not have to contribute to the cost of COBRA premiums). Employers will receive a credit against payroll taxes for the cost of the subsidy.

The subsidy will cease before September 30, 2021 for those (1) whose maximum COBRA coverage period ends earlier (using their original COBRA qualifying event date); or (2) who become eligible for another group health plan or Medicare. Certain penalties will apply if an individual fails to inform his or her employer of such other health plan coverage eligibility.

Assistance Eligible Individuals

Employees (and their spouses and dependent children) who lose (or lost) group health plan coverage due to involuntary termination of employment or reduction of work hours and elect (or elected) COBRA coverage are eligible for the subsidy. Other COBRA qualifying events do not qualify for the subsidy.

New Election Period Applies

Eligible Individuals who have not yet exhausted their original 18-month COBRA continuation coverage period and either (1) did not elect COBRA; or (2) elected COBRA, but dropped it, must be given a new 60-day special enrollment period to elect this coverage. These individuals may receive the subsidy on a prospective basis (i.e., they will not have to pay for COBRA retroactively for months prior to April 1, 2021).

Revised COBRA Notices

Employers must update their COBRA notices, within 60 days of April 1, 2021, to include information on the availability of the subsidy and the new special 60-day enrollment period. ARPA directs the U.S. Department of Labor to issue model notices within 30 days of its enactment.

Steps to Take Now

Employers should begin preparing for the impact of this by contacting their group plan insurer or COBRA administrators about their compliance plan. In addition, employers should begin gathering information about individuals who (1) were involuntarily terminated (or whose hours were reduced); and (2) either elected, or were eligible to elect, COBRA coverage. Having this information ready will facilitate the process of notifying and processing payments.

We will provide you with additional updates as soon as they are available. In the meantime, please contact us with any questions.

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