Employers Need to Gear Up for ARPA’s COBRA Subsidy

Daniel L. Morgan

The Consolidated Omnibus Budget Reconciliation Act (“COBRA”) requires group health plans to allow qualified beneficiaries who would otherwise lose coverage due to certain events to elect to continue coverage under the plans by paying a monthly premium of up to 102 percent of the plan’s cost of providing the coverage. Qualified beneficiaries include employees and former employees and their spouses and dependents who were covered by the plan at the time of loss of coverage.

COBRA Premium Assistance

The American Rescue Plan Act of 2021 (“ARPA”) requires employers to subsidize the cost of COBRA continuation coverage, or such costs under state mini-COBRA laws where COBRA does not apply—with an assist from Uncle Sam (as described below). This subsidy must be provided for qualified beneficiaries who become eligible for and elect COBRA (or a state’s mini-COBRA) benefits as a result of an employee’s loss of health plan coverage due to an involuntary termination of employment (other than for gross misconduct) or a reduction of hours. ARPA refers to people who satisfy these requirements as “Assistance Eligible Individuals.”

The COBRA and mini-COBRA premium subsidy is available only from April 1, 2021, through September 30, 2021. However, the subsidy also applies to Assistance Eligible Individuals who became eligible for COBRA or mini-COBRA prior to April 1, 2021, but whose COBRA coverage period would have extended to overlap with the period from April 1 through September 30, 2021. (See below for more insight.)

An Assistance Eligible Individual loses the subsidy if they become eligible for coverage under another group health plan, such as a plan sponsored by a new employer or a spouse’s employer), or becomes eligible for Medicare. Individuals receiving this COBRA subsidy must notify their plans if they become eligible for coverage under another group health plan or become eligible for Medicare. Failing to provide this notice can result in the individual having to pay a tax penalty to the IRS.

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