The American Rescue Plan Act of 2021 (ARPA) includes the addition of a 100% premium subsidy for continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (COBRA) for the six-month period April 1, 2021, through September 30, 2021. The Department of Labor issued guidance and model notices to help employers comply with the provisions.
Eligibility: An Assistance Eligible Individual (AEI) is any COBRA qualified beneficiary, including both employees and dependents, who lost coverage as a result of an involuntary termination or reduction in hours. Notably, the loss of coverage does not have to result from a COVID-related event. Other COBRA qualifying events, including voluntary termination of employment or divorce, do not entitle the employee or dependents to the premium subsidy. If the employee was terminated for cause or performance issues, the former employee should be offered these new rights for coverage and the subsidy, if the employer offered COBRA initially and did not trigger the exception for gross misconduct.
If an employee dropped or did not elect to take COBRA, but the coverage would be in effect as of April 1, the individual may elect to participate in the COBRA coverage as of April 1 and receive the subsidy. Employers must provide a supplemental notice to qualified beneficiaries eligible for the subsidy no later than May 31, 2021.
If a former employee becomes eligible for coverage under another group health plan, such as through another employer, spouse's plan, or Medicare, they would not be eligible.
Payroll tax credit: The subsidy paid by the employer is funded through a tax credit against the employer's Medicare tax liability. If the tax credits exceed payroll tax withholdings, a refund may be requested on the employer's quarterly payroll tax filing on Form 941.
Actions to take: