As part of the American Rescue Plan Act of 2021 (“ARPA”), Congress enacted a temporary Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) subsidy for certain individuals for coverage periods from April 1, 2021 to September 30, 2021 (the “Subsidy Period”). On April 7, 2021 the United States Department of Labor (“DOL”) issued FAQs to assist employers and plan administrators to understand the subsidy.
The subsidy provides that the employee need not pay COBRA premiums during the Subsidy Period, but rather that the employer pays 100% of the subsidy to “Assistance Eligible Individuals” (“AEIs”) and then gets repaid through tax credits. The assistance applies to all “group health plans sponsored by private-sector employers or employee organizations (unions) subject to the COBRA rules under the Employee Retirement Income Security Act of 1974 (ERISA). They also apply to plans sponsored by State or local governments subject to the continuation provisions under the Public Health Service Act. The premium assistance is also available for group health insurance required under state mini-COBRA laws.” See Question #2 of the DOL FAQs.
An AEI is any employee who:
- Is involuntarily terminated during the Subsidy Period or has had his/her hours reduced because of the business’s change in operations, a change from full-time to part-time status, taking a temporary leave of absence or participation in a labor strike; and
- Elects COBRA continuation coverage.
AEIs include those who have elected COBRA coverage as of April 1, 2021 and include spouses and other dependents. Assistance will end earlier than September 30, 2021 if an employee becomes eligible for another group health plan (such as through a spouse’s employer or a new employer), or the employee reaches the maximum COBRA continuation coverage period.
Employees and their dependents will not qualify for the subsidy if the employee voluntarily terminated employment by resigning or if coverage is lost through divorce or some other voluntary reason. The subsidy is also not available to any employee who is terminated for gross misconduct.
Significantly, plan administrators must provide a special extended COBRA election notice to AEIs who became entitled to elect COBRA before April 1, 2021 who either: (1) declined COBRA coverage when it was first offered or (2) initially elected COBRA coverage but subsequently dropped coverage due to the inability to continue paying the premium. These AEIs are now entitled to a second bite at the apple to elect COBRA coverage and receive the subsidy, so long as the maximum COBRA period has not expired by April 1, 2021 (i.e., generally those with applicable qualifying events before October 1, 2019). The aforementioned special election notices must be provided to these AEIs by May 31, 2021.
Further guidance and COBRA premium subsidy model notices are available on the DOL’s website.