The American Rescue Plan Act Provides for COBRA Subsidies

The American Rescue Plan Act (ARPA) was signed into law on March 11, 2021. One of the many important provisions of this new law is the availability of COBRA subsidies.

Beginning April 1, 2021, assistance-eligible individuals (AEIs) may receive a 100% subsidy for COBRA premiums for any period of COBRA coverage during the period beginning on April 1, 2021, through September 30, 2021. An AEI is a COBRA qualified beneficiary covered spouse or covered dependent, who is eligible for and elects COBRA coverage due to a qualifying event of involuntary termination of employment or a reduction of hours. Individuals who do not have a COBRA election in effect on April 1, 2021, but who would be an AEI if they did, are eligible for the subsidy.

Individuals who elected but discontinued COBRA coverage before April 1, 2021, are eligible if they would otherwise be an AEI and are still within their maximum period of coverage. Individuals who meet the criteria may make a COBRA election during the period beginning on April 1, 2021, and ending 60 days after they are provided the required notification of the extended election period. COBRA coverage elected during the extended election period will start with the first period of coverage beginning on or after April 1, 2021, and may not extend beyond the AEI’s original maximum period of coverage.

An employer may, but is not required to, allow AEIs to elect to enroll in different coverage. Enrollment must occur within 90 days after the date of notice informing the individual of the enrollment option. Enrollment in different coverage may be permitted only if:

• The premium does not exceed the premium for the coverage in which the individual was enrolled at the time of the qualifying event
• The different coverage is also offered to similarly situated active employees at the time of the election
• The different coverage is not covered that provides only excepted benefits or is a qualified small employer health reimbursement arrangement or health flexible spending arrangement. 

Group health plans must provide the following notices to AEIs:

• Notice of assistance available, which informs AEIs of the availability of the subsidy and the option to enroll in different coverage. This notice must be provided to individuals who become eligible to elect COBRA during the period beginning on April 1, 2021, and ending on September 30, 2021. 
• Notice of extended election period must be provided to individuals eligible for an extended election period within 60 days after April 1, 2021. 
• Notice of expiration of subsidy must be provided between 45 and 15 days before the date on which an individual’s subsidy will expire unless the subsidy is expiring because the individual has gained eligibility for coverage under another group health plan or Medicare. (ARPA Sec. 9501(a)(6))

The Department of Labor (DOL) will be issuing model notices within 30 days of March 11, 2021. These notices can be used to notify eligible individuals of the availability of assistance and the availability of an extended enrollment period. Within 45 days, the DOL will also issue model notices regarding the expiration of the subsidy. Employers will be allowed a quarterly tax credit against the Medicare payroll tax equal to the premium amounts not paid by AEIs payroll tax. Effective for tax years ending after March 11, 2021, subsidy amounts will not be included in the gross income of AEIs.

There is language in the act that suggests that the subsidies may also be applicable to groups that are regulated by state continuation.