The American Rescue Plan Act, signed into law by President Biden on March 11, 2021, allows eligible individuals to receive COBRA coverage 100% premium free from April 1, 2021, through September 30, 2021. The employer pays the entirety of the premium for those who qualify. Individuals who become covered under another group plan or Medicare during this subsidy period are no longer eligible for the subsidy and must notify the group plan to discontinue assistance or face a penalty.
Who is eligible for premium assistance?
Individuals who lose coverage due to involuntary employment termination or reduction of hours may be an “Assistance Eligible Individual” (AEI) and eligible for the premium assistance. Loss of coverage for these reasons does not have to be COVID-related. Voluntary terminations are not eligible, nor are those receiving COBRA due to death, divorce, aging out of the plan, or those involuntarily terminated for gross misconduct.
These are the situations that qualify for premium assistance:
- Individuals who are, or become, eligible during the subsidy period. For example, an employee who was involuntarily terminated on February 1 or April 15, 2021.
- Individuals previously eligible for COBRA and did not elect it, or elected and subsequently dropped coverage, are eligible if their coverage period would have extended into the premium assistance period. Individuals not currently covered under COBRA do not have to pay premiums for coverage prior to April 1, 2021, to be eligible for coverage and premium assistance.
- For example, someone who was involuntarily terminated September 1, 2020, and who did not elect COBRA at the time, or
- Someone who was involuntarily terminated September 1, 2020, elected COBRA and subsequently dropped the coverage by ceasing to pay premiums past December 30, 2020.
This could result in those with qualifying termination reasons going back as far as November 2019 being an AEI. That is because their 18-month COBRA period would have extended into April 2021.
The value of the subsidy is not taxable to the person receiving the COBRA premium assistance.
Which employers must provide COBRA premium assistance?
Employers with health plans that are covered under the Employment Retirement Income Security Act (ERISA), the Public Health Service Act (PHSA), or the Internal Revenue Code (IRC) are subject to premium assistance requirements. That includes public employers, private employers, multiemployer health plans, and both fully-insured and self-insured health plans.
What plans are “Health Plans” and covered by premium assistance?
Premium assistance applies to all medical plans. It likely also applies to stand-alone dental, vision, and EAP plans, although further clarification would be welcome. Health Flexible Spending Accounts (FSA) are not covered. It’s also currently unclear whether premium assistance applies to states’ plans, like Colorado Continuation Coverage.
How do employers recover the COBRA premium assistance cost?
Employers can be reimbursed up to 102% of AEI’s COBRA costs through a dollar-for-dollar credit against the employer’s Medicare tax obligations. If the total COBRA premium assistance amount is greater than their Medicare obligations, the government will pay the employer back. If the plan sponsor’s COBRA premium costs exceed its Medicare payroll tax liability, it can file to get direct payment of the remaining credit amount. The Secretary of the Treasury will provide more information on how reimbursement works in the future, including forms and instructions.
Who gets the credit? For fully-insured or self-insured employer-sponsored plans, the Plan Sponsor gets the credits. For multiemployer plans, the plan receives the reimbursement.
When does premium assistance eligibility end?
Premium assistance ceases at the earliest of the following:
- AEI who become eligible for other group plan coverage or Medicare. Note this is different than the usual COBRA rule, which requires enrollment in another plan before losing COBRA eligibility, or
- When the AEIs original COBRA period is exhausted (ex. expiration of 18 months), or
- September 30, 2021.
An AEI may be eligible to continue COBRA coverage after September 30, 2021, if their coverage period is not exhausted. However, the AEI would be required to pay premiums again to continue their coverage.
How does the Alternative Coverage option work?
ARPA also gives employers the choice to allow AEIs to change their medical plan option. The requirements for the new plan chosen are:
- The premium on the new plan cannot be greater than the premium of the plan the individual was in at the time of the COBRA event, and
- The new plan option must also be available to active employees, and
- The qualified beneficiary must elect the plan option change within 90 days of receiving notice of the ability to make such change.
The employer’s plan must be amended to allow AEIs to change plans. The new plan cannot be a Health FSA, Qualified Small Employer Health Reimbursement Account (QSEHRA), or excepted benefit (ex. Accident-only coverage).
How does COBRA Premium Assistance work with the COVID-19 Outbreak Period Relief?
It’s currently unclear. Those covered under the extended COBRA election period allowed by COVID-19 Outbreak Period Relief are most likely eligible for premium assistance. Additional clarification on this point would be welcome.
What notices must employers provide to AEIs?
There are three notices employers are required to provide under ARPA: 1) notice of the availability of premium assistance; 2) an extended election notice; and 3) notice of expiration of subsidy. Model enrollment notices will be released in the near future.
The table below gives more information on each notice: