The American Rescue Plan Act of 2021 requires employers to pay for their eligible employees' COBRA continuation coverage from April 1 through September 30, 2021 (Subsidy Period). In exchange, the employer will be reimbursed in full through refundable payroll tax credits against the employer's portion of Medicare taxes. The credit will be the full cost of the COBRA continuation coverage, including up to a 2% administrative fee. This credit is available for health, prescription drug, dental, and vision plans but does not apply to health flexible spending accounts (FSAs), health savings accounts (HSAs), or long-term care plans. The credit is prospective only and cannot begin before April 1, 2021.
Employers that sponsor a fully insured plan would continue paying the full premium to the insurer for the eligible employees. Employers that sponsor a self-insured plan would pay the claims incurred by the eligible employees. In both cases, the employer would receive no payment from the eligible employees during the Subsidy Period.
Employees are eligible for free COBRA continuation coverage if they are involuntarily terminated or have a reduction (voluntary or involuntary) in hours that qualifies them for COBRA continuation coverage during the Subsidy Period.
The new COBRA premium assistance is not available to the following individuals:
- Employees who are terminated for gross misconduct.
- Employees who voluntarily terminated their employment or who retired.
- Individuals who are eligible for COBRA due to other reasons, like divorce, death, or loss of dependency status.
- Individuals who are eligible for other group health care coverage (such as from a new employer) or Medicare.
- Individuals who are beyond their normal COBRA coverage period connected to the original qualifying event (e.g., the employee’s involuntary termination or reduction in hours that caused a loss of group health plan coverage).
- Domestic partners who are not federal income tax dependents of the eligible employee.
The COBRA continuation coverage recipient must notify the employer or plan administrator when they become eligible for (not enrolled in) Medicare or another group health plan (other than coverage under an excepted benefit, a FSA, or a qualified small employer health reimbursement arrangement).
By May 31, 2021, individuals who previously rejected (or terminated) COBRA coverage and to whom a new election period must be offered must be notified of their new election period and the availability of the premium assistance. This essentially creates a special COBRA enrollment period for such individuals.
Between August 17 and September 15, 2021, group health plans must provide a notice to individuals receiving the premium assistance stating that the subsidy will expire on September 30, 2021, and that they may be eligible for COBRA coverage without the subsidy. If the subsidy would end earlier for any individual, the plan must provide a notice that the subsidy is expiring no earlier than 45 days and no later than 15 days before the subsidy expiration date.
Employers may rely on personnel records or employee self-certifications documenting hours reduction or voluntary or involuntary terminations. Employers must retain these documents for all eligible employees.
This law is relatively new, and there are parts of it that are still being interpreted. Reach out to your health insurance provider for guidance on what else you may need to provide to your eligible employees to make them aware of this benefit.
