100% COBRA Premium Subsidy – Immediate Action Required from Employers
On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 (ARPA) into law. The 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 period April 1, 2021, through Sep. 30, 2021. On April 8, 2021, the Department of Labor (DOL) issued new notices that may be used to notify eligible qualified beneficiaries about their right to elect COBRA continuation coverage and receive the subsidy during this six-month period.
Who is eligible for the subsidy?
The ARPA includes a 100% premium subsidy for COBRA qualified beneficiaries, including both employees and dependents, if the qualifying event which caused the loss of COBRA coverage was an involuntary termination of employment or a reduction in hours of employment. Other COBRA qualifying events, including voluntary termination of employment or divorce, do not entitle the employee or dependents to the premium subsidy.
Is the subsidy available to someone terminated for cause or due to performance issues?
A former employee terminated for cause or due to performance issues is eligible for the new election right and subsidy if COBRA continuation coverage was originally offered. The COBRA rules do not require that COBRA be offered to someone terminated for gross misconduct, which is a higher threshold than a typical termination for cause or termination for performance issues. If the employer offered COBRA initially and did not rely on this exception for gross misconduct, the former employee should be offered these new rights for coverage and the subsidy.
Does the termination of employment have to be related to COVID-19 for the former employee to be eligible for the subsidy?
The involuntary termination does not have to be related to COVID-19.
What period is covered by the subsidy?
The subsidy is available for COBRA coverage in effect from April 1, 2021, through Sept. 30, 2021 (or the last day of the maximum period of continuation coverage, if prior to Sept. 30). A former employee or qualified beneficiary loses eligibility for the subsidy as of the date he or she becomes eligible for other comprehensive group health plan coverage, including Medicare.
What about someone whose COBRA coverage would be in effect during the subsidy period but they dropped COBRA or did not elect COBRA?
If an employee was eligible to elect COBRA coverage prior to April 1 or otherwise dropped COBRA coverage prior to April 1, but such individual’s COBRA coverage would be in effect as of April 1 but for the failure to elect or decision to drop coverage, 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 30, 2021. Links to the model notices developed by the DOL are below.
What portion of the subsidy is eligible for a payroll tax credit?
An employer will receive a 100% payroll tax credit for the amount of the subsidy provided. The credit may offset payroll taxes otherwise required to be transmitted to the Internal Revenue Service (IRS). If the tax credits exceed payroll tax withholdings, a refund may be requested on the employer’s quarterly payroll tax filing on Form 941.
What are an employer’s next steps?
- Identify former employees and other COBRA qualified beneficiaries who should receive the new election notice. This includes individuals whose qualifying event was the involuntary termination of employment or reduction in hours and whose COBRA coverage period includes any month during the subsidy period. A new notice should be sent to individuals in this category 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, 202 The DOL model notice is available here under the Model Notice tab, Model Notice in Connection with Extended Elections Period. The Summary of COBRA Premium Assistance Provisions under the American Rescue Plan Act of 2021 document should also be included with the notice. Employers should send the required notice and summary no later than May 30, 202
- Modify existing COBRA election forms to be sent to a COBRA qualified beneficiary who will have COBRA coverage in effect during the subsidy period to inform them about the 100% subsidy. The DOL model notice for qualifying events which occur on or after April 1, 2021, through Sept. 30, 2021, is available here under the Model Notice tab, Model General Notice and COBRA Continuation Coverage Election Notice.
- 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 DOL model notice is available here under the Model Notice tab, Model Notice in Connection with Extended Elections Period. The Summary of COBRA Premium Assistance Provisions under the American Rescue Plan Act of 2021 document should also be included with the notice. Employers should send the required notices no later than May 30, 2021.
- Provide notice to affected individuals of the end of the premium subsidy period. The notice must be provided 15-45 days before the end of the subsidy period. The DOL model notice is available here under the Model Notice tab, Model Notice of Expiration of Premium Assistance.
We will continue to provide updates as the DOL and IRS provide required notices, forms and additional guidance.