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COBRA Provisions Through the American Rescue Plan Act of 2021

On March 11, 2021, the American Rescue Plan Act of 2021 (ARPA) was signed by the President. ARPA is a $1.9 trillion economic stimulus package intended to speed up recovery from the Covid-19 pandemic. Included in the ARPA was a specific provision for COBRA continuation of health coverage. Here’s what you should know.

What does the COBRA provision include?

A 100% Healthcare premium subsidy for individuals and families who experienced an involuntary termination or reduction of hours. The healthcare premium subsidy encompasses Medical, Dental and Vision Plans. In addition, any former employee (who is otherwise an Assistance Eligible Individual) who did not elect COBRA coverage or dropped COBRA coverage prior to April 1 but would otherwise be within his/her 18-month COBRA coverage period between April 1 and September 30, 2021, is eligible for the COBRA premium subsidy.

Who is eligible for the COBRA subsidy? 

The subsidy is available for Assistance Eligible Individuals (AEIs). COBRA Participants must meet the below criteria to be an AEI:

  1. Coverage was lost due to involuntary termination of employment or reduction in hours.
  2. The COBRA participant is still within the COBRA eligibility period as of April 1, 2021.
  3. Eligible COBRA participants who do not have an election in place will have the opportunity to make an election during an Extended Election Period and will be able to take advantage of the subsidy effective April 1, 2021. This will be referred to as the “lookback period” in determining member eligibility.
  4. Eligible COBRA participants who have an election in place as of April 1, 2021 will be able to take advantage of the subsidy effective April 1, 2021.
  5. Eligible COBRA participants who become eligible for COBRA continuation coverage on or after April 1, 2021 will be eligible for the subsidy while it is in effect.

How long will the subsidy last?

April 1, 2021 through September 30, 2021. Any employee or family member who is or becomes eligible for other group health coverage (other than an excepted benefit) or Medicare, is not eligible for the subsidy. The individual has the obligation to notify the employer if he or she is not eligible or loses eligibility.

The COBRA Participant doesn’t have to be enrolled into COBRA to be eligible.

If the COBRA Participant is within their 18-month COBRA period, they are eligible to participate. Additionally, they can make a prospective enrollment, which is also new.

Example: Bob Smith was involuntarily terminated in December of 2020 and was offered COBRA coverage, effective 1/1/21. Bob never enrolled into COBRA, however, Bob’s 18 months of COBRA that was offered does span the dates of April 1- September 30. Bob meets the requirements to be considered an AEI. What does this mean for Bob? Answer: Bob can enroll into COBRA coverage, effective 4/1/21. Bob does not have to enroll back to 1/1/21, like he normally would have. Additionally, Bob’s healthcare premiums from April 1- Sept 30th will be subsidized, meaning Bob does not have to pay for coverage out of pocket.

Does the ARPA extend COBRA coverage? 

The ARPA subsidy does not extend COBRA coverage – coverage will still expire 18 months after coverage was lost, even if that is in the middle of the subsidy period. 

How will the company be reimbursed for the subsidy if you aren’t collecting premium payments from the COBRA participants?   

The Federal Government will reimburse the employer or insurer (for fully insured plans) for the cost of the subsidy, including the 2% COBRA administrative fees. Costs will be recouped either by a payroll tax credit or a refund.

What are the notice requirements?

ARPA requires the Department of Labor (DOL) to provide model notices within 30 days from the date of enactment – on or before April 10. The Act requires that Assistance Eligible Individuals (AEIs) in the lookback period, as well as those currently enrolled, receive a notification regarding the subsidy within 60 days of April 1, 2021; newly eligible COBRA participants should be notified within the current standard COBRA time frames.

The act is still new and information is still expected to come. It is advised that you speak with a trusted professional for help with the process.

Is there anything Payroll Systems can help you with as you accommodate rapid legislation changes? Reach out and talk to us about the easy-to-scale solutions you need for managing your workforce.

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This article provides general information and shouldn’t be construed as legal or HR advice. Since employment laws may change over time and can vary by location and industry, please consult a lawyer or HR expert for advice specific to your business. You can also contact Payroll Systems to inquire about our HR support services.