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The American Recovery Plan Provides (Generous and Administratively Challenging) COBRA Subsidies

The recently enacted American Rescue Plan Act of 2021 (the “Act”) creates a federal subsidy covering 100% of COBRA premiums for certain employees and other qualified beneficiaries. The subsidy is payable during the six-month period commencing April 1, 2021 and ending September 30, 2021. Individuals who previously experienced an involuntary termination, or reduction in hours, but who did not elect COBRA, are allowed to enroll. Similarly, individuals who dropped COBRA coverage, but who are still within their original COBRA coverage period, are allowed to re-enroll. Employers are reimbursed for the cost of the subsidy through a payroll tax credit.

Individuals eligible to receive a subsidy are referred in the new law as “assistance eligible individuals.” These include any individual who is a COBRA-qualified beneficiary and who is eligible for COBRA continuation coverage due to involuntary termination or reduction in hours. The subsidy covers the cost of the COBRA premiums for single or family medical, dental, and vision plans but not health FSAs. Individuals who are denied a subsidy are provided with appellate rights.

Assistance eligible individuals also include employees and other qualified beneficiaries who  previously qualified for, but who did not elect, COBRA coverage, as well as those who previously qualified and elected COBRA coverage only to later let it lapse. These individuals must be provided notice that they qualify for the subsidy. They then have 60 days from the date of receiving notice to make or renew their COBRA election. Once elected, coverage commences no earlier than April 1, 2021, and it ends on the earlier of September 30, 2021 or the date on which the individual’s standard COBRA coverage period would have otherwise expired. Elections under this provision can result in periods where there is no coverage. Employers cannot require affected employees to pay premiums for the gap months as a condition for receiving a subsidy.

As assistance eligible individual’s right to subsidies under the Act terminates before September 30, 2021 if the individual becomes eligible for coverage under another group health plan (other than a plan consisting of only excepted benefits) or Medicare. An employee or other qualified beneficiary receiving the subsidy must notify the employer upon becoming eligible for other coverage. Failure to do so can result in a penalty of $250. The penalty is increased to 110% of the amount of the subsidy if the failure to notify is fraudulent.

The Act requires employers to provide the certain notices to assist in implementing the Act’s subsidy provisions. These include:

  • A notice to assistance eligible individuals advising them of the subsidy’s availability and whether the employer chooses the option to enroll in other coverage. (Assistance eligible individuals have 90 days from the receipt of notice to enroll in coverage.)
  • A notice to assistance eligible individuals who previously experienced a COBRA qualifying event and who are still within their 18-month COBRA period advising them that they have the opportunity to reconsider their COBRA coverage. (This notice is required within 60 days from the receipt of notice to enroll in coverage.)
  • A notice to assistance eligible individuals of the date on which the subsidy will expire. This notice must be provided 15 to 45 days before the expiration date. (This notice is not required in instances in which the subsidy terminates as a result of an assistance eligible individual becoming covered under another group health plan or Medicare.)

The Act directs the Department of Labor to issue model notices for initial subsidy notifications within 30 days of enactment and a model expiration notice within 45 days of enactment.

The implementation of the Act’s COBRA premium subsidies will be complicated by the Subsidy and Extension of COBRA Deadlines.

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