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HR Tip: What employers need to know about 100% COBRA premium subsidy

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:

  1. Identify former employees and other COBRA qualified beneficiaries who should receive the new election notice. A new notice should be sent to individuals whose COBRA coverage would be in effect at any time from April 1, 2021 through Sept. 30, 2021, but who did not elect COBRA or who dropped COBRA prior to April 1, 2021. Include the Summary of COBRA Premium Assistance Provisions under the American Rescue Plan Act of 2021 document and send no later than May 31, 2021. Individuals have 60 days after the notice is provided to elect COBRA.
  2. Notify COBRA qualified beneficiaries with COBRA coverage in force that the 100% subsidy applies during the subsidy period. Determine if any premiums should be refunded or applied to post-subsidy periods. The relevant model notice is Model Notice in Connection with Extended Elections Period. Include the Summary of COBRA Premium Assistance Provisions under the American Rescue Plan Act of 2021 document and send no later than May 31, 2021.
  3. For qualifying events which occur on or after April 1, 2021, through Sept. 30, 2021, modify existing COBRA election forms to be sent to a COBRA qualified beneficiary to inform them about the 100% subsidy. The DOL model notice is Model General Notice and COBRA Continuation Coverage Election Notice.
  4. Prepare to send a notice of expiration of the subsidy 15-45 days prior to the AEI's subsidy expiration. The relevant model notice is Model Notice of Expiration of Premium Assistance.