On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 (ARPA), yet another federal effort to address employment issues related to the COVID-19 pandemic. Among other provisions, ARPA created a 100 percent COBRA premium subsidy and additional COBRA enrollment rights for certain employees (and their families) who lost group health plan coverage due to an involuntary termination of employment or a reduction of hours.
From April 1, 2021 through September 30, 2021, 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. The subsidy requirement applies to major medical, dental and vision plans offered by employers, but not health flexible spending accounts.
An individual is an AEI if they qualify for COBRA coverage due to 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.
Individuals who do not have a COBRA election in effect on April 1, 2021, but who would be AEIs if they did, are also eligible for the subsidy. This means that individuals who experienced an involuntary termination of employment or a reduction of hours so that COBRA would have started sometime within the 18 months prior to April 1, 2021, but who did not timely elect COBRA, may still elect subsidized COBRA coverage prospectively. In addition, individuals who had elected COBRA coverage but discontinued such coverage before April 1, 2021 are eligible to re-elect COBRA coverage if they would otherwise be AEIs and are still within their COBRA 18-month maximum coverage period.
The amount of the COBRA premium subsidy is not taxable to the AEI. The premium amount is advanced by the employer or plan and will be reimbursed by the federal government through a refundable credit against payroll taxes. For self-insured plans and insured plans subject to federal COBRA, the employer will receive the tax credit. 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.
Employers, insurers, and administrators will need to implement the ARPA COBRA provisions on very short notice, since subsidies became available beginning April 1, 2021. The Department of Labor is expected to issue further guidance, but employers should consult with their insurers, third-party administrators, and advisors now to ensure compliance.
For more information on the ARPA COBRA subsidies, or if you have questions about implementation of these changes, please contact your primary Varnum attorney or any member of the Employee Benefits Practice Team.