On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 (ARPA) in an effort to address employment issues caused by the COVID-19 pandemic. Among other provisions, ARPA created a COBRA premium subsidy along with additional COBRA enrollment rights for certain employees who lost group health plan coverage due to an involuntary termination of employment or a reduction of hours.
ARPA & Cobra Subsidy
From April 1, 2021 through September 30, 2021, group health plans providing COBRA continuation coverage (or continuation coverage under state “mini-COBRA” laws) must offer a 100 percent subsidy of COBRA premiums for assistance-eligible individuals and their dependents.
The premium amount is paid by the employer or plan and will be reimbursed by the federal government through a refundable credit against payroll taxes. For self-insured plans and insured plans subject to federal COBRA, the employer will receive the tax credit. For insured plans not subject to COBRA, the insurer will receive the credit. Credit amounts exceeding Medicare taxes will be treated as a refund of a Medicare tax overpayment.
Additionally, ARPA imposes three key notice requirements on employers with compliance deadline. First, before May 31, 2021, employers were required to notify those who became eligible for premium assistance before April 1, 2021, that they may be entitled to premium-assisted COBRA coverage. This same information needs to be provided to all individuals that become eligible for COBRA during the six-month subsidy period.
Employers will also be responsible for notifying "second chance" individuals of their option to re-elect COBRA coverage by May 31, 2021. Finally, employers will be responsible for notifying AEIs when the COBRA premium assistance period is ending. These notices must be sent to AEIs at least 15 days – but not more than 45 days – prior to the expiration of premium-assistance COBRA coverage.