New Law Provides 100% COBRA Premium Subsidy

The American Rescue Plan Act of 2021 (ARPA) signed into law on March 11, 2021, includes a 100% COBRA premium subsidy for COBRA and state mini-COBRA plans.  COBRA is the acronym for the federal statute that permits employees to continue their group health coverage after separation from an employer for certain reasons, including involuntary termination from employment and reduced hours of employment.  The 100% premium subsidy coverage period begins April 1, 2021, and ends September 30, 2021.  Most employers with group health plans are impacted by the subsidy. 

The premium subsidy must initially be paid by employers, who will receive a 100% credit on their federal tax obligations so that the ultimate cost will be borne by the federal government.  Employers also will be able to seek a refund if their premium responsibilities exceed their tax liability.  Regulations detailing compliance obligations are expected to be released soon.

Individuals Eligible for Assistance

1. Persons qualifying for the subsidy include employees who lose group health coverage due to termination or reduction in hours in the workplace and their family members who were also in the group health plan at the time of the loss of coverage.
2. Eligibility is extended to individuals who a) previously declined COBRA coverage, b) previously elected COBRA coverage and are still eligible after April 1, 2021, c) previously elected COBRA coverage and dropped coverage prior to April 1, 2021, or d) become eligible after April 1, 2021.
3. The COBRA coverage period is not extended by the new law. Coverage will expire 18 months after the group health coverage was lost.
4. The individual may elect COBRA coverage under an extended election period (60 days from April 1, 2021); however, the effective date of coverage and the subsidy is April 1, 2021. Thus there may be a gap in coverage between the discontinuation of prior participation and the renewal of subsidized participation. For example, if an employee dropped coverage on January 1, 2021 and elects to take advantage of the subsidy, coverage will be effective on April 1, 2021.
5. COBRA coverage shall end if the individual a) is or becomes eligible for health care coverage under another group health plan or Medicare, or b) reaches the maximum period under COBRA coverage.
6. Any individual currently on COBRA and who has paid the premium for April 2021 is eligible for a refund within 60 days of the date of payment.
7. The subsidy will not be included as taxable income for the individual.

Responsibilities of Employer/Plan Administrators

1. Every employer and plan administrator must:
   • identify all individuals who are eligible for the subsidy, which includes individuals who became eligible in October 2019 or later.
   • provide a written notice to all COBRA qualified beneficiaries of their eligibility for the subsidy with 60 days from April 1, 2021.
   • inform individuals the premium subsidy is retroactive to April 1, 2021.
   • inform the individual no more than 45 days nor less than 15 days prior to the expiration date of the impending expiration of the subsidy.
2. Employers, at their election, may allow individuals to change their coverage to a different plan if a) the plan option is equal or less expensive to the prior coverage, b) available to similarly situated active employees, and c) the plan is not a health flexible spending account, a qualified small-employer health reimbursement arrangement or excepted benefits coverage.

Reimbursement to Employers

1. Employers will need to pay the monthly premiums in full to the COBRA insurer for the subsidy period on or after April 1, 2021, and refund individuals if they have already paid a portion of the premium.
2. A 100% reimbursement for the subsidy will be available through a new tax credit against payroll taxes paid by the employer.
3. Any reimbursement amount in excess of payroll taxes may be claimed by the employer as a tax credit and may be reimbursed by the IRS.

More information is expected from the IRS and the Department of Labor in upcoming days.  In the meantime, employers are advised to work closely with their COBRA plan administrators to develop compliance plan, identify all potential individuals who are qualified beneficiaries and provide written notice prior to May 31, 2021.  If you need assistance or have questions regarding your requirements as an employer, please reach out to the employment attorneys at Critchfield for assistance.