American Rescue Plan Act - COBRA

The American Rescue Plan Act (ARPA): Subsidized COBRA Premiums for “Assistance Eligible Individuals”

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The American Rescue Plan Act (ARPA), signed into law March 11, 2021, contains a number of provisions that will impact employers, including COBRA subsidies for employees or their family members who would otherwise lose their healthcare due to involuntary termination or a reduction in their hours.

Below, we will provide a brief explanation of how the new COBRA subsidies will work, which employers are affected by the ARPA, who qualifies as an “assistance eligible individual” (AEI), and the notice requirements for the ARPA’s COBRA subsidies.

COBRA and the American Rescue Plan Act (ARPA)

What employers will be affected by the ARPA’s COBRA subsidies and who’s going to pay for it? First, although most employers are likely familiar with the provisions of COBRA, let’s briefly review what COBRA is and how it works.

Explanation of COBRA

The Consolidated Omnibus Budget Reconciliation Act (COBRA), passed by Congress in 1985, requires employers to continue to offer employee health insurance to employees who have been laid off, fired, or quit. It also applies to employees who will lose their healthcare coverage due to a reduction in hours worked.

If the former employee elects to continue their healthcare plan and they agree to pay the full amount of the healthcare premium plus a two percent administrative fee, they can remain on their healthcare plan for up to 18 months after they lost their job or would have become ineligible for insurance coverage.

COBRA Premium Subsidies Under the ARPA

Recognizing 1) that the COVID-19 pandemic has caused many employees to lose their jobs or work reduced hours and 2) that the additional costs of COBRA premiums for unemployed or underemployed workers may be prohibitive for many, the ARPA shifts the burden of COBRA premiums to the former employer who can then be reimbursed through a payroll tax credit.

An Assistance Eligible Individual (AEI) can receive as much as six months of paid COBRA premiums between April 1, 2021 and September 30, 2021 unless their coverage period (ordinarily 18 months) ends before September 30, 2021.

An AEI is no longer eligible for COBRA coverage from their previous employer if they become eligible for coverage under another group healthcare plan or Medicare, and the former employee must notify their former employer about any change in their eligibility.

Which Employers are Affected by the ARPA’s COBRA Requirements?

Who is required to provide subsidized COBRA coverage under the ARPA?

  1. All employer health care plans that are subject to the federal requirements of COBRA are affected by the ARPA’s COBRA provisions, and
  2. Smaller employers who are not subject to COBRA but who are subject to a state’s healthcare continuation law, including the state of Texas, are also subject to the ARPA’s COBRA subsidies.

The COBRA subsidy requirement is mandatory. Employers who are subject to the federal COBRA provisions or state continuation law must pay the COBRA premiums on behalf of AEIs.

Who Pays for the ARPA’s COBRA Subsidies?

Employers must pay COBRA premiums on behalf of AEIs, but they can be reimbursed through tax credits on their quarterly payroll taxes.

If the cost of the subsidized coverage is greater than the amount of payroll taxes owed, then

1) the excess amount will be treated as an overpayment and refunded to the employer, or

2) employers can seek an advance payment of the excess amount when the subsidy is expected to exceed the amount of payroll taxes.

Who is an “Assistance Eligible Individual” (AEI)?

An Assistance Eligible Individual (AEI) is any individual who is covered by an employer’s group healthcare plan who will lose (or has lost) their healthcare coverage because of:

  • An involuntary termination (unless the termination was for gross misconduct), or
  • A reduction in work hours (voluntary or involuntary), and
  • Who elects to continue their healthcare coverage under COBRA during the covered dates of April 1, 2021 through September 31, 2021.

ARPA’s COBRA provisions should apply to 1) former employees who are already enrolled in COBRA coverage and 2) those who elect to enroll in COBRA coverage during the period of April 1, 2021 through September 31, 2021.

What is the Enrollment Period for Extended COBRA Protections?

Ordinarily, COBRA beneficiaries must elect COBRA coverage within 60 days of either 1) losing coverage or 2) receiving notice of their right to elect COBRA coverage, whichever is later. Under the ARPA, however, the period for COBRA election is tolled for up to 12 months.

Notice Requirements for the ARPA’s COBRA Subsidies

There are three requirements in the ARPA for notices that must be provided to AEIs:

  1. General Election Notice: When AEIs first become eligible for subsidized coverage, the employer healthcare plan must provide a “General Election Notice” that explains that the AEI is eligible for subsidized coverage from April 1, 2021 through September 31, 2021 as well as details about how the subsidized coverage will be administered. The US Department of Labor (USDOL) should publish a model notice by April 10, 2021.
  2. Special Election Notice: For AEIs who have previously discontinued or declined COBRA coverage but who are still within the COBRA eligibility period, the employer healthcare plan must provide a “Special Election Notice” that the AEI can receive subsidized COBRA coverage from April 1, 2021 through September 31, 2021. The notice must be sent within 60 days of April 1, 2021 and AEIs will have 60 days from receipt of the notice to elect the subsidized COBRA coverage. The USDOL should publish a model notice by April 10, 2021.
  3. Expiration of Subsidy Notice: The “Expiration of Subsidy Notice” notifies an AEI who is receiving subsidized COBRA coverage of the date their subsidized coverage will expire, and it must be sent no sooner than 45 days and no later than 15 days before the subsidized coverage expires. The USDOL should publish a model notice by April 25, 2021.

Please feel free to contact one of our Murray Lobb attorneys to obtain our legal advice regarding your business’ obligations under the ARPA and COBRA. We also remain available to help you with all your general business, corporate, and estate planning needs.