4-9-21 COBRA Subsidy

As part of President Biden's American Rescue Plan Act of 2021 (ARPA), there is a COBRA subsidy component. More specifically, under ARPA, employers subject to COBRA must allow "assistance eligible individuals" (AEI's) the opportunity to receive a 100% COBRA subsidy (i.e., free COBRA coverage) from April 1 through September 30, 2021. The subsidy applies to anyone who incurs an ARPA qualifying event on or after April 1, 2021 (including (i) a reduction in hours or (ii) involuntary termination of employment other than for gross misconduct); has COBRA coverage as of April 1 as a result of an ARPA qualifying event; experienced an ARPA qualifying event prior to April 1 but had not yet elected COBRA coverage as of April 1; or experienced an ARPA qualifying event prior to April 1 but declined or discontinued COBRA coverage prior to April 1. Employees who voluntarily terminate their employment are not eligible for the COBRA subsidy.

An AEI is no longer eligible for a subsidy upon the earliest of his or her becoming eligible for other group health plan coverage or Medicare, the expiration of his or her maximum COBRA period or September 30, 2021.

The subsidy will be paid by employers; however, such employers will be entitled to receive a payroll tax credit equal to the subsidy amount paid. If a group health plan is subject to federal COBRA, the employer will receive the tax credits directly, regardless of whether it is fully insured, self-insured. If a self-funded plan is not subject to federal COBRA but is subject to state continuation coverage (i.e., mini-COBRA requirements), then the employer will receive the tax credit and pays the insurer or third-party administrator to subsidize the coverage. If a fully insured plan is subject to mini-COBRA requirements, then the insurer receives the tax credits and is responsible for ensuring the AEI's continuation coverage at no cost. If an employer's credit exceeds the amount of taxes due, the employer will be eligible to receive a refund when it files its Form 941.

Perhaps one of the most painful parts of this COBRA subsidy requirement for employers is the requirement that individuals who experienced an ARPA qualifying event prior to April 1 but had not yet elected COBRA coverage as of April 1 or experienced an ARPA qualifying event prior to April 1 but declined or discontinued COBRA coverage prior to April 1 must be provided a special enrollment period from April 1st through the 60th day following receipt of the COBRA notice, allowing them to elect subsidized COBRA coverage. Employers do not have to offer retroactive COBRA coverage.

Employers have until May 30 to update their COBRA notices to include information about the availability of the subsidy and the special 60-day enrollment period. The DOL is expected to publish model notices by the end of April.

For more information contact your Woods Oviatt attorney or Lorisa D. LaRocca, Esq., Chair, Labor & Employment Department at 585-987-2834 or LLarocca@woodsoviatt.com.