On March 11, 2021, President Biden signed the ‘‘American Rescue Plan Act of 2021’’ (ARPA) which contains numerous provisions to aid individuals, businesses and state and local governments impacted by the coronavirus pandemic. Included among those provisions is funding to pay COBRA premiums for individuals who lost their group health insurance coverage during the pandemic.
What is the COBRA subsidy?
ARPA’s COBRA Premium Assistance will pay 100% of the applicable premium for “Assistance Eligible Individuals (AEIs)” during the months of April 2021 through September 2021.
What businesses are elibible?
Businesses with group health plans providing COBRA continuation coverage (or continuation coverage under state “mini-COBRA” laws) must offer a 100 percent subsidy of COBRA premiums for “assistance eligible individuals” (AEIs) and their qualified beneficiaries.
Which insurance products are subsidized in this program?
The subsidy requirement applies to major medical, dental and vision plans offered by employers, but not health flexible spending accounts or other products.
Which employees are eligible for COBRA assistance?
AEIs are COBRA Qualified Beneficiaries who
Experienced an involuntary termination of employment or reduction of hours (Individuals who qualify for COBRA coverage due to other qualifying events, such as a voluntary termination of employment, are not considered to be AEIs eligible for the premium subsidy.)
Are not currently eligible for other group health plan coverage or Medicare
AEIs can be Qualified Beneficiary who’s original 18 month maximum period of COBRA would have extended into April 2020. Therefore, AEIs could include individuals who lost coverage due to an involuntary termination of employment or reduction of hours that occurred as long ago as October 2, 2019.
Who receives the subsidy - business or former employee?
For self-insured plans and insured plans subject to federal COBRA, the employer will receive the tax credit. The premium amount is advanced by the employer and will be reimbursed by the federal government through a refundable credit against payroll taxes. Your COBRA administration company will assist in this process.
For insured plans not subject to COBRA, the insurer will receive the credit. Credit amounts exceeding Medicare taxes will be treated as a refund of a Medicare tax overpayment.
The amount of the COBRA premium subsidy is not taxable to the AEI.
What are the requirements?
Eligiblity:
AEIs who elect COBRA coverage as a result of the COBRA Premium Assistance Notice may start their coverage beginning in April 2021. ARPA overrides the standard COBRA requirement that requires Qualified Beneficiaries to elect coverage (and pay for it) back to their original loss of coverage date. ARPA does not extend a Qualified Beneficiary’s maximum period of coverage beyond the 18th month after the original loss of coverage.
Notices:
ARPA requires employers to send a special supplemental COBRA Notice to any potential AEIs with information about the COBRA Premium Assistance no later than May 30, 2021. The U.S. Department of Labor is tasked with providing Model Notices for this purpose no later than April 10, 2021. This notice will be sent by your COBRA administration company.
ARPA also requires employer to send a second notice later this summer to AEIs regarding the end of the COBRA Premium Assistance, which will be distributed by the COBRA administration company.
Resources:
Questions?
If you have any questions, please reach out to your Account Manager at Bailey Risk Management. We can help connect you to the COBRA administration company for more information.