The American Rescue Plan Act of 2021 (“ARPA”) provides a COBRA premium subsidy for certain individuals.
Individuals who are eligible for COBRA due to a qualifying event that is an involuntary termination of employment or reduction of hours may receive a 100% subsidy on their COBRA premiums beginning April 1, 2021 and continuing through September 30, 2021 if they meet the subsidy requirements. An assistance-eligible individual must be enrolled in or elect COBRA during the subsidy period to be entitled to the $0 coverage. The COBRA premium subsidy is available to certain eligible individuals who qualify for continued health coverage under COBRA and state mini-COBRA rules.
Getting the Premium Subsidy:
Receiving the COBRA premium subsidy is not automatic. If an individual wants to be considered for subsidized coverage, the individual must complete a “Request for Treatment as an Assistance Eligible Individual” form and return it to the employer or third-party COBRA administrator. Completing this form informs the plan that the individual does not have other health coverage or Medicare and wants the premium assistance. For employers who use BAS’ Cobra Control Services (CCS) for COBRA administration, CCS will distribute, accept, review and monitor request forms.
Length of Subsidized Coverage:
The premium assistance period begins April 1, 2021 and expires upon the earliest of
- The individual becoming eligible for coverage under any other group health plan or Medicare, or
- The end of the individual’s maximum COBRA/continuation coverage duration period, or
- September 30, 2021 (if not further extended).
End of Eligibility for Subsidized Coverage:
If an individual becomes eligible for other coverage but doesn’t enroll in the other coverage, the individual’s right to COBRA may continue but the right to the 100% premium subsidy ends. Any individual who receives the subsidized COBRA coverage must report if they become eligible for other coverage. Not reporting other coverage will subject the individual to a $250 penalty. If the lack of notice is willful or fraudulent, the individual will be penalized an amount equal to the greater of 110% of the premium assistance or $250.
Who Gets New Election for Subsidized Coverage:
Former employees whose original qualifying event was an involuntary termination of employment or reduction of hours and are in a COBRA election period but did not yet elect COBRA and those who were active on COBRA but terminated coverage before April 1, 2021 (but re still within the 18-month COBRA duration period) must be given a new "second chance" opportunity to elect COBRA. The new "second chance" election period runs for 60 days from the date the notice about the premium subsidy is sent. If an election is made during this period, the new COBRA period starts April 1, 2021 (or a later date if requested by the continuant) and ends at the end of the original maximum COBRA duration period. The continuant does not need to pay premiums back to the original COBRA start date to receive the fully-subsidized COBRA coverage upon the "second chance" election. This new election period applies to employers following Federal COBRA and does not apply to state continuation coverage (aka mini-COBRA).
Notice Requirements:
ARPA requires updates to COBRA and mini-COBRA qualifying event letters and new notices to individuals who might be eligible for premium assistance. The Department of Labor issued model notices providing approved language for the new communications.
The notice requirements include:
- A general notice to all qualified beneficiaries who have a qualifying event that is a reduction in hours or an involuntary termination of employment from April 1, 2021 through September 30, 2021. This is an update to the existing qualifying event letter.
- A notice of the new second chance COBRA election period to any Assistance Eligible Individual (or any individual who would be an Assistance Eligible Individual if a COBRA continuation coverage election were in effect) who had a qualifying even before April 1, 2021 and is still within the COBRA duration period. This notice must be provided by May 31, 2021.
- A notice of the expiration of premium assistance. This notice must be provided 15 - 45 days before the individual’s premium assistance expires.
The first two notices will include a form for requesting the premium subsidy and a form to notify the employer if the is no longer subsidy eligible. A Department of Labor summary of the premium assistance will also be included in the notice package.
New Plan Enrollment Option:
Employers may allow continuants to switch to a new group health plan option under COBRA if the premium for the new coverage does not cost more than the continuant’s original coverage; the new coverage is offered to similarly situated active employees; and the new coverage is not excepted benefit (vision or dental only), a qualified small employer HRA, or an FSA. Allowing a plan change is optional for employers.
Tax Credit for Coverage:
The person to whom premiums are payable for continuation coverage will take a refundable payroll tax credit against quarterly taxes in an amount equal to the subsidized COBRA premium (which may include the 2% administrative fee). The IRS will issue regulations providing guidance on how an employer can take the tax credit and get a refund if the employer does not owe taxes sufficient to cover the premium amount. For self-funded plans, the employer will most likely be the entity taking the tax credit. For state mini-COBRA fully insured plans, the insurance company claims the tax credit.
BAS Can Help!
BAS is actively programming for the COBRA premium subsidy and other ARPA requirements. If you use Cobra Control Services for your COBRA administration, please be assured that we are actively programming for the new requirements and will distribute information to continuants within the required timeframes. Please look for future communication from CCS about the ARPA subsidy.
