Thursday, April 15, 2021
SUBSIDIZED COBRA COVERAGE UNDER THE AMERICAN RESCUE PLAN ACT
By: Patrick Spellman of Williams, Bax & Saltzman, P.C.
President Biden recently signed into law the American Rescue Plan Act of 2021 (“ARPA”), which requires employers to provide a 100% premium subsidy to “assistance eligible individuals” and their dependents for continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) beginning on or after April 1, 2021 and ending September 30, 2021.
An “assistance eligible individual” is generally defined as an employee who has been involuntary terminated or who has experienced a reduction in hours. There are two groups of “assistance eligible individuals” that qualify for this new subsidy under ARPA and COBRA. The first group of “assistance eligible individuals” includes employees who become eligible for COBRA continuation coverage beginning on or after April 1, 2021, and ending September 30, 2021. The second group includes former employees who did not elect COBRA continuation coverage or dropped such coverage prior to April 1, 2021, but who still otherwise qualify for 18-month COBRA continuation coverage between April 1, 2021 and September 30, 2021. Consequently, in respect to the second group, an employer is required to provide notice to former employees of their right to elect this new subsidy under ARPA.
The new subsidy is effective only from April 1, 2021 through September 30, 2021. The new subsidy will terminate once an “assistance eligible individual” becomes eligible under some other group health plan coverage or Medicare. “Assistance eligible individuals” are required to notify their plan if they become eligible for other group health plan coverage.
Employers providing 100% premium assistance for continuation coverage under ARPA are entitled to a tax credit against taxes otherwise imposed by the Internal Revenue Service. Participating employers must pay the continuation premium directly to the health insurer, and the resulting credit is limited to the amount of health insurance tax liability imposed by 26 U.S.C § 3111 (i.e., 1.45% of the employee’s wages). Further details regarding this tax credit will be provided in IRS guidelines to be issued in the near future.
ARPA further requires employers to provide “assistance eligible individuals” with notice of their rights to elect the subsidy. Recently, the United States Secretary of Labor issued model notices to assist employers comply with ARPA and COBRA. Such notices can be found at the website of the United States Department of Labor. At minimum, ARPA requires that the notice include the following information:
- The forms necessary for establishing eligibility for the subsidy;
- The name, address, and telephone number necessary to contact the plan administrator and any other person maintaining relevant information in connection with such premium assistance;
- A description of the extended election period provided for those employees who fall within the second group of “assistance eligible individuals” described above;
- An explanation that a qualified beneficiary is obligated to notify the plan if they are disqualified from receiving the COBRA subsidy due to eligibility for other group health plan or Medicare coverage;
- A description of the penalty for failure to notify the plan of disqualification; and
- An explanation of the right to a subsidized COBRA coverage, and any conditions on eligibility to the subsidy.
For assistance navigating and implementing the requirements of ARPA, please contact the Williams, Bax & Saltzman, P.C. Labor and Employment Law Group (saltzman@wbs-law.com or spellman@wbs-law.com) for more details or assistance.
Information contained in this publication is intended for information purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.