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Employers Now Required to Fully Subsidize COBRA Coverage

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Amanda J. Dernovshek, Julie L. Hamlet and Mindi M. Johnson
Foster Swift Employee Benefits News
April 7, 2021

COBRA Health Insurance FormThe American Rescue Plan Act (“ARPA”), enacted on March 11, 2021, requires employers to fully subsidize COBRA coverage for certain individuals during the period beginning on April 1, 2021 and ending on September 30, 2021 (the “Subsidy Period”). This article provides an overview of the COBRA subsidy provisions under the ARPA.

a. General Requirement

The ARPA requires employers to cover 100% of the cost of COBRA coverage for certain assistance eligible individuals ("AEIs") during the Subsidy Period. An AEI is any individual who, due to an involuntary termination of employment or reduction in hours, is entitled to COBRA continuation coverage during the Subsidy Period. However, the subsidy is not available if the AEI is eligible for other group health plan coverage or Medicare. The subsidy will be funded by the federal government through payroll tax credits against employers’ quarterly Medicare taxes.

b. Special Election Period for Certain Participants who Previously Turned Down or Discontinued COBRA Coverage

ARPA also allows AEIs who were eligible to elect COBRA coverage but did not enroll, as well as those who elected COBRA but then discontinued coverage, to elect (or re-elect) COBRA coverage if they are still within their COBRA coverage window (either 18 or 36 months from their qualifying event). Such an election must be made within the special election period that begins on April 1, 2021 and ends 60 days after the plan provides the AEI with notice of the availability of the new enrollment opportunity.

c. Notice Requirement

The ARPA imposes three notice requirements, which are summarized below.

  1. New COBRA Information. COBRA election notices provided to individuals who become eligible to elect COBRA during the Subsidy Period must include additional information about the subsidy.
  2. COBRA Special Enrollment Notice. An employer must provide a notice of the special election period for AEIs who previously turned down or discontinued COBRA coverage. This notice must be provided on or before May 31, 2021.
  3. Notice of Subsidy Expiration. Plan administrators must also provide advance notice of the expiration of an AEI's COBRA subsidy. This notice must be provided at least 15 days but no more than 45 days prior to the expiration of the COBRA subsidy.

The U.S. Department of Labor’s Employee Benefits Security Administration recently posted model notices for each of the above requirements on its website.

As you may appreciate, there are many nuances related to the requirements imposed by the ARPA. Please contact one of the authors of this article if you have any questions regarding the new COBRA subsidy requirements or if you would like to discuss how the ARPA affects your organization’s benefit plans.