The American Rescue Plan and COBRA Subsidies: What Employers Need to Know

Posted on Friday, April 30th, 2021.

Congress recently passed “The American Rescue Plan Act” (“ARPA”), a $1.9 trillion package of economic relief and we have summarized the major provisions affecting employers in our March 29, 2021 Client Alert. Among its many provisions, the COBRA continuation coverage subsidy has created many questions for employers who must now comply with notifications, effective May 31, 2021.

Applicable Group Health Plans

Employees with a COBRA qualifying event will have 100% of the premiums for continuation coverage provided under any employer-provided medical, dental or vision plan subsidized from April 1, 2021 until September 30, 2021. This period includes any COBRA continuation coverage period in the eighteen (18)months preceding April 1, 2021.

The Department of Labor recently clarified that while the federal COBRA law is applicable only to employers with twenty or more employees, the subsidy mandate also applies to any continuation coverage, including continuation coverage mandated by State “mini-COBRA” laws applicable to employers with fewer than twenty employees. And unlike the ambiguous provisions in the FFCRA, the subsidy mandate also applies to plans sponsored by the State or local governments subject to the continuation provisions of the Public Health Services Act.

“Assistance Eligible Individuals”

In order to be an “Assistance Eligible Individual,” (“AEI”) an individual must satisfy the following criteria:

  • Have a COBRA qualifying event that is a reduction in hours or an involuntary termination of a covered employee’s employment
  • Elect COBRA continuation coverage (generally 18 months from the COBRA qualifying event);
  • Must Not be eligible for Medicare; and
  • Must Not be eligible for coverage under any other group health plan, such as a plan sponsored by a new employer or a spouse’s employer (not including excepted benefits, a QSHERA or a health FSA).

Length of Premium Assistance

            The premium assistance lasts from April 1, 2021 through September 30, 2021. It ends earlier if employees become eligible for another group health plan by a new employer or through a spouse’s employer, an AEI becomes eligible for Medicare or the AEI reaches the end of his or her maximum COBRA continuation coverage period.  The bill does not expand the total COBRA continuation coverage period, nor does it provide subsidies for any months outside April 1, 2021 through September 30, 2021. The AEI may continue the COBRA coverage after September 30, 2021 at his or her own expense.

            AEI’s Who Waived or Discontinued COBRA Coverage

            AEI’s whose qualifying event occurred prior to April 1, 2021 and who did not elect COBRA continuation coverage or who discontinued it because he or she were unable to pay, will now have an additional sixty (60) day election period. Employers must notify these AEI’s by May 31, 2021, and those who elect COBRA may begin it from either their election date or choose to start on April 1, 2021.  Again, the bill does not extend the total continuation maximum period of eighteen (18) months, and the premium assistance only is available between April 1 and September 30, 2021.

            Employer Notice Requirements

            Employers must send out the required notices to all AEI’s by May 30, 2021.  Model versions of these notices are available on the Department of Labor website and include the following:

  1. A general notice and COBRA Continuing Coverage Election Notice
  2. A Notice in Connection With an Extended Election Period
  3. A Notice of Expiration of Premium Assistance (must be provided 15 – 45 days before individual’s premium assistance expires)

An Alternative Notice, and a Summary of COBRA Premium Assistance Provisions are also

available on the Department of Labor Website.

            Further guidance is expected from the federal government. We will update this alert accordingly.

Please contact us with any specific questions concerning eligibility and notification requirements, or anything else related to the ARPA.  

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