COBRA Benefits Updates Under ARPA
On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 (ARPA). The following provisions of the ARPA pertain to the Consolidated Omnibus Budget Reconciliation Act (COBRA):
- From April 1, 2021, through September 30, 2021, employees and their covered family members who lost group health insurance due to involuntary termination or reduction in hours due to the COVID-19 pandemic are entitled to free COBRA coverage.
- This subsidy does not apply to those who voluntarily left employment.
- Individuals covered by COBRA during this period are not charged any premiums.
- Self-insured employers will cover the COBRA premiums and take a tax credit for payroll tax equal to the cost of COBRA premiums paid.
- The insurance carrier may claim the credit for fully insured plans.
- The following individuals are eligible for the subsidy during the subsidy period:
- Individuals who experience a qualifying event between April 1, 2021, and September 30, 2021.
- Individuals who experience a qualifying event before April 1, 2021, but who had existing COBRA coverage on April 1, 2021.
- Individuals who experience a qualifying event before April 1, 2021, and are still within the COBRA continuation period despite not having elected COBRA when the qualifying event first occurred.
- Individuals who elected Cobra but discontinued COBRA coverage before April 1, 2021, and are still in the COBRA continuation period as of April 1, 2021.
- COBRA continuation coverage elected by an individual will start coverage beginning on or after April 1, 2021.; however, coverage will not extend beyond the maximum continuation period for the qualifying event.
- The ARPA institutes a provision that states that the employer may allow eligible employees to elect a different health plan. The eligible individuals have up to 90 days to make this election; however, the alternative coverage choice premium cannot exceed the premium for the individual’s existing COBRA continuation coverage.
- If the employer allows alternative coverage choice, they are required to offer it to active employees.
- Once an individual becomes eligible for another group health plan, the individual is no longer eligible for the subsidy.
- The federal government funds the subsidy in the form of a payroll tax credit. This credit will be available to the employer, insurer, or plan sponsor, depending upon the plan’s structure.
- Plan administrators are required to send out a notice of the special enrollment period no later than May 31, 2021.
- Plan administrators must also send out notices to individuals enrolled when the subsidy is about to expire.
- The Department of Labor will issue model COBRA notices along with guidance on the distribution of the notices.
The recently passed ARPA is a lengthy document with many changes to the previous economic stimulus packages. Our team of experienced tax advisors are continually reviewing these updates to ensure that we can provide you with the best guidance possible for your unique situation. Please contact us with any questions.
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