Free COBRA Coverage under the American Rescue Plan Act of 2021
On March 11, 2021, President Biden signed the latest coronavirus relief law, the American Rescue Plan Act of 2021 (“ARPA”). Among other things, the ARPA requires employers extend offers of free COBRA coverage to certain individuals for the period of April 1, 2021 through September 30, 2021. Employers will then be provided with a payroll tax credit as a means to offset the costs of providing this free COBRA coverage. This is directly contrary to the normal COBRA scenario, in which an employee who involuntarily was released from employment or saw a reduction in hours must pay the premium.
Who is Eligible?
Only “assistance eligible individuals” (“AEIs”) qualify. An AEI is a qualified beneficiary who is eligible for and elects COBRA for a period of coverage within the period of April 1, 2021 through September 30, 2021, due to involuntary termination or a reduction in hours.
AEIs also include individuals who were eligible to elect COBRA continuation coverage due to involuntary termination or reduction in hours, but who had not yet elected as of April 1, 2021, or who had elected such coverage but discontinued it prior to April 1, 2021 (referred to as Extended Qualified Beneficiaries). Extended Qualified Beneficiaries must elect COBRA during a period that begins on April 1, 2021 and ends 60 days after the plan administrator provides a newly required notice alerting them that they qualify for COBRA premium assistance under the ARPA. The U.S. Department of Labor (DOL) must provide model notices for this purpose no later than April 10, 2021, and plan administrators must provide the notices to Extended Qualified Beneficiaries no later than May 31, 2021.
An AEI is no longer eligible upon the earliest of his/her becoming eligible for another group health plan coverage or Medicare, or the expiration of his/her maximum coverage period (generally 18 months after an employee’s termination).
In order to comply with the changes made by the ARPA, employers will need to revise all COBRA notices (or create a separate, clear supplemental document) and must send notice of the subsidy and the right to elect coverage to certain COBRA-eligible workers, current COBRA recipients and their dependents. The COBRA notice form or supplement must:
- Explain the availability of the COBRA premium subsidy and the conditions for receiving it;
- Describe any forms necessary for establishing COBRA premium assistance eligibility;
- Provide the name, address, and telephone information for the plan administrator or other individual maintaining relevant information regarding COBRA premium assistance;
- Explain the extended election period available to Extended Qualified Beneficiaries;
- Notify qualified beneficiaries that they must tell the group health plan if they become eligible for other group health coverage or Medicare or be subject to a $250 penalty (higher if intentional); and
- Describe the option to enroll in different coverage, if adopted by the employer.
Employers will need to provide notice to subsidy-eligible individuals no less than 15 and no more than 45 days before any subsidy ends, unless the subsidy ends because the individual has obtained other group health plan coverage.
Model notices should be issued by the U.S. Department of Labor within the next 30 days. The initial notices must be issued no later than May 31, 2021.
In light of this, we strongly encourage employers to immediately begin taking steps to determine which employees/dependents may be eligible for the COBRA subsidy.
**UPDATE: April 8, 2021**
Today, the DOL released guidance on the ARPA COBRA subsidy, including model notices and Frequently Asked Questions. All information is available on the DOL's COBRA Premium Subsidy page.
The downloadable model notices include:
- General Notice and Election Notice
- Notice in Connection with Extended Election Period
- Alternative Notice
- Notice of Expiration of Premium Assistance
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