American Rescue Plan Act Mandates COBRA Subsidies Through September 2021 for COBRA Qualifying Beneficiaries Who Lose Coverage Due to Involuntary Termination or Reduction in Hours

By Kara Backus - Bullard Law

April 6, 2021

The sweeping legislation under the American Rescue Plan Act (“ARPA”), passed by Congress and signed by President Biden in March, included a small but significant set of provisions requiring employers to subsidize COBRA continuation coverage for employees who lost coverage due to the employee’s reduction in hours or involuntary termination of employment, some as far back as November 2019.

Under the new law, employers must offer to subsidize COBRA premiums at 100% for the six-month period running from April 1, 2021 through September 30, 2021 for “assistance eligible individuals,” defined as any person, including the employee’s dependent, who experiences a COBRA qualifying event due to a reduction in hours or a termination of employment other than the employee’s voluntary termination of employment, and then subsequently elects COBRA. The subsidy, and in some cases the offer to enroll or re-enroll in COBRA coverage, extends to employees who will experience a COBRA qualifying event in the next several months, those who are currently enrolled in COBRA, as well as those who experienced a COBRA qualifying event as far back as November 2019 (i.e., those whose 18-month COBRA coverage period extends at least as far as April 2021) and either never elected COBRA or made a COBRA election and then subsequently stopped making COBRA premium payments. The new law does not, however,  extend the maximum COBRA coverage period for which the qualified beneficiary was initially eligible, and coverage can still be terminated early if the beneficiary becomes eligible for another group health plan or Medicare. To cover the cost of the subsidy, corresponding payroll tax credits are available under ARPA for insurance carriers that provide coverage under fully insured plans and for employers that sponsor self-insured plans.

The subsidy must also be made available to employees who have continuation coverage rights under state law, but not under COBRA.

Employers may, but are not required to, allow assistance eligible individuals to enroll in a different type of coverage offered under the plan, provided the different coverage option is not more expensive than the coverage option in which the employee was previously enrolled and does not provide only excepted benefits.

Employers are required to provide notice to assistance eligible individuals who have not been informed of the availability of the subsidy within 60 days of April 1, 2021. They can do so by adding to or revising the usual COBRA election notice or, for assistance eligible individuals who never enrolled in COBRA or dropped COBRA but are still within the maximum coverage period, by providing a new notice explaining that they have a second opportunity to enroll in the plan and receive the subsidy. Employers will also be required to provide a notice later on to assistance eligible individuals receiving subsidies that the subsidies are due to expire for coverage periods after September 30, 2021. The Department of Labor is expected to issue model notices this month.

Employers should begin reviewing their COBRA notices now and compiling a list of individuals who will need to receive them. We will continue to monitor this issue and keep an eye out for additional agency guidance. If you have any questions, please contact any member of the Bullard Law team.