COBRA Subsidies Under New COVID-19 Relief Legislation, the America Rescue Plan Act of 2021
By John Welsh and Martha J. Zackin
The American Rescue Plan Act of 2021 (“ARPA”), signed into law on March 11, 2021, provides fully subsidized health care continuation coverage to certain individuals. These “assistance-eligible individuals” or “AEIs,” include workers and their dependent family members who lost group health insurance coverage due to involuntary employment termination or reduction in hours, whether or not occasioned by the COVID-19 pandemic. The subsidy applies to group health insurance plans subject to the Consolidated Omnibus Reconciliation Act of 1985 (“COBRA”) or comparable state continuation coverage. Employers subject to COBRA are those with at least 20 employees on more than 50 percent of its typical business days in the previous calendar year; smaller employers in states with “mini-COBRA” laws, such as Massachusetts, must also provide continuation coverage. The subsidy applies to health, dental, and/or vision insurance premiums; health flexible spending arrangements are not eligible for subsidies. The subsidy is not available to individuals who lost coverage for any reason other than those set forth above.
The subsidy is available for the six-month period from April 1 through September 30, 2021 only. Eligibility for the subsidy terminates if the AEI becomes eligible for other group health plan coverage or Medicare. AEIs are subject to penalties of up to 110% of the subsidy if they fail to notify the group health plan when they become eligible for other health care coverage. AEIs are not eligible for subsidies if coverage was lost due to employment resignation, termination for gross misconduct (which is a very high burden to meet), or other qualifying event (such as death of the covered employee, divorce, or legal separation).
Employers may choose to offer AEIs insurance coverage under a group health plan other than the one in they participated in during the covered employee’s employment, provided that the other plan does not have higher premiums and other conditions are met.
Employers are generally responsible for paying the subsidized insurance premiums. For group health plans subject to COBRA, whether fully insured or self-insured, employers may fully recoup these premium costs through dollar-for-dollar credits taken against quarterly Medicare payroll tax payments. For fully-insured group health plans subject to any states mini-COBRA law, the subsidies are reimbursable to the insurance carrier. This apparent anomaly in the law may be remedied at a later date- in the interim, if your fully-insured group health plan is not covered by COBRA but is covered by a state’s mini-COBRA law, your insurer should be willing to “front” the cost of premiums, given that it will receive the tax credit.
Eligibility for Premium Subsidies
Continuation coverage generally lasts for up to eighteen months from the date coverage is lost. For that reason, premium subsidies may be available to an AEI whose coverage was previously lost, provided they are still in the eighteen-month coverage period. Accordingly, premium subsidies may be available to an AEI
- Who loses coverage after April 1, 2021;
- Who lost coverage before April 1, 2021 who elected continuation coverage; and
- Who lost coverage at any time from November 1, 2019 forward, and who either did not elect coverage or who elected coverage but stopped paying the premiums (the eighteen-month continuation period for an AEI who lost coverage on November 1, 2019 ends on April 30, 2021, making them eligible for one month of subsidized coverage).
In each instance, eligibility for premium subsidies end at the earliest of: eligibility for other insurance coverage; the end of the continuation coverage period; or September 30, 2021. Premiums are not subsidized retroactively. In other words, for example, an AEI who lost coverage on January 1, 2020 and paid for continuation coverage until June 30, 2020 at which time they became eligible for other insurance, will not receive a subsidy relating to the six months during which they paid COBRA premiums.
COBRA notices must be amended to explain subsidy availability, and distribute those notices by May 31, 2021. Failure to do so will be considered a failure to meet COBRA notice requirements, and penalized accordingly. The Department of Labor has been tasked with providing model notices by April 10, 2021.
In addition, notices must be sent between fifteen and forty-five days before the subsidy expires. This means that if an AEI’s coverage period expires on July 31, 2021, for example, they must receive notice of that the subsidy will expire and what other rights they may have between June 16 and July 16, 2021. The Department of Labor will publish model notices by April 25, 2021.
What to do NOW
- Companies should identify and compile contact information of all former employees involuntarily terminated since November 1, 2019.
- Because the “gross misconduct” exclusion from coverage under COBRA is almost insurmountable, you should confer with counsel before excising any former employee from the list for this reason. Also, please note that if an employee resigned upon the company’s request or in lieu of termination, they may be considered eligible as “constructively-terminated.”
- Engage in discussions with your insurance carrier and plan administrator, if applicable, to divvy up responsibilities for these new requirements.
We will notify you when the model notices and interpretive rules are published. We expect insurance carriers will also circulate compliant forms once the Department of Labor acts.