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Alerts and Updates

The American Rescue Plan Act of 2021 Includes a Full COBRA Health Insurance Subsidy

March 17, 2021

The American Rescue Plan Act of 2021 Includes a Full COBRA Health Insurance Subsidy

March 17, 2021

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During the period from April 2021 through September 2021, the federal government will pay the full COBRA premium.

President Joe Biden signed the American Rescue Plan Act of 2021 (ARP) into law on March 11, 2021. Among many other provisions, the ARP includes a temporary 100 percent COBRA subsidy for individuals whose qualifying event was an involuntary termination of employment or reduction in hours. The COBRA subsidy goes into effect on April 1, 2021, and will apply to employers that sponsor both fully insured and self-insured coverage for their employees. This Alert outlines the COBRA subsidy rules and implementation steps for employers.

Eligibility

The subsidy is available to employees who lose (or have already lost) their health coverage due to an involuntary termination of employment or reduction in hours and who:

  • Are enrolled in COBRA or become eligible for COBRA on or after April 1, 2021, and before September 30, 2021; or
  • Became eligible for COBRA prior to April 1, 2021, and the period of COBRA coverage to which they would be entitled (generally 18 months) includes any month between April 2021 and September 2021―even if the individual did not elect COBRA when it was initially offered or elected COBRA but discontinued it before April 1, 2021.

Subsidy Amount  

During the period from April 2021 through September 2021, the federal government will pay the full COBRA premium. If an eligible individual pays a COBRA premium during the subsidy period, that premium must be refunded within 60 days.

Subsidy Duration

The subsidy will last for six months at most (i.e., through September 2021). The subsidy will end earlier if the individual’s maximum period of COBRA coverage ends prior to September 2021. It would also end earlier if the individual becomes eligible for coverage under another group health plan or Medicare. These individuals are required to notify their group health plan if they become eligible for such coverage and will be subject to potential penalties if they fail to do so.

The ARP does not extend the maximum COBRA period. For example, if an individual’s 18 months of COBRA coverage is set to expire on May 31, 2021, the act does not extend coverage through September; it will simply allow for the final two months of COBRA premiums to be 100 percent subsidized by the federal government, at no cost to the individual.

Notice Requirements

The ARP imposes a number of new notice requirements:

  • Group health plans must provide a notice about the availability of the subsidy to any individual who becomes eligible to elect COBRA between April 1, 2021, and September 30, 2021. A model notice will be issued no later than April 10, 2021.
  • Group health plans must provide a notice to individuals who are eligible for the subsidy due to an involuntary termination of employment or reduction of hours followed by a loss of coverage that occurred before April 1, 2021, but for which the maximum COBRA period has not yet expired. For individuals that previously did not elect COBRA or discontinued COBRA prior to April 1, 2021, they will be given a new opportunity to elect COBRA coverage and take advantage of the subsidy. A model notice will be issued no later than April 10, 2021, and must be provided to individuals by May 31, 2021. Any such election would then be retroactive to April 1, 2021, the start of the subsidy period.
  • Group health plans are required to notify individuals if their subsidy will terminate before September 30, 2021. This notice is not required if the subsidy will terminate due to the individual’s eligibility for other coverage or Medicare. A model notice will be issued no later than April 25, 2021, and must be provided between 15 to 45 days before the subsidy will expire.

Subsidy Payment

Impacted individuals will not pay any portion of the COBRA premium. Rather, the subsidy will be paid to the plan or plan sponsor as a credit against quarterly payroll taxes. If the credit exceeds the amount of payroll taxes due, the credit is refundable. The Treasury Department will also issue rules on the ability to receive an advance of the subsidy.

Impact on Group Health Plans

Employers should work to begin identifying individuals who will be required to receive a notice about the new subsidy. This will include individuals who are currently on COBRA as a result of an involuntary termination of employment or reduction in hours, or who could have been on COBRA for these reasons, for any month between April 2021 and September 2021. Those currently on COBRA will be notified of their eligibility for the subsidy, while those not on COBRA will be notified of their new election right and the opportunity to receive the subsidy. In addition, employers should be in contact with any third party administrators to ensure that appropriate processes and procedures are being established.

About Duane Morris

Further guidance and model notices will be published in the near future. We will continue to monitor developments and provide timely updates. In the meantime, attorneys in the Employee Benefits and Executive Compensation Group are available to assist employers with any questions.

For More Information

If you have any questions about this Alert, please contact any of the attorneys in our Employee Benefits and Executive Compensation Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.