stimulus package

Understanding the COBRA Subsidy in the American Rescue Plan Stimulus Package

Co-authored by Katy Stowers. Updated April 12, 2021.

The long-awaited $1.9 trillion American Rescue Plan (ARPA) stimulus package signed into law by President Biden on March 11, 2021, is not such a relief to Human Resources and organizational leaders like you. It includes sweeping modifications to COBRA paid sick leave provisions, and dependent care flexible spending accounts (FSAs).

One of the hot topics is the COBRA subsidy which provides a 100% subsidy to qualified individuals. Below outlines critical elements of the subsidy program. If you use a third party to administer COBRA for your organization, you should expect to hear from them soon, if you haven’t already, now that the model notices are available from the Department of Labor.

How Does the COBRA Subsidy Work?

The COBRA subsidy requires employer plan sponsors to allow terminated employees and family members to continue healthcare coverage at no cost, subject to a timely COBRA election. That means your organization is required to cover the monthly premium expense but can then recoup the expense through a quarterly credit against payroll taxes. If the overall amount that your organization pays for subsidized coverage is more than its quarterly tax liability, you can claim a refund. An advance credit may also be available should the Treasury Department allow it.

How Long Will the Subsidy Last?

The COBRA subsidy provisions began April 1, 2021 and expire on September 30, 2021.

Who Is Eligible to Receive Subsidized COBRA?

Subsidized COBRA will be available for any previously covered employee or family member who:

  • Lost healthcare coverage due to involuntary termination of employment or reduction of hours and remain in their 18-month eligibility period during the subsidy’s six-month effective time (April 1-September 30).
  • Did not elect COBRA when originally eligible, or who elected and subsequently dropped coverage.

In practical terms, any employee who lost health coverage for qualifying reasons between November 1, 2019 and September 30, 2021 could take advantage of these provisions. It’s important to note that the termination of employment or reduction in hours must be involuntary for the individual to qualify.

When Does Subsidized Coverage End?

Subsidized COBRA coverage will end if the qualified individual exhausts the 18-month COBRA period prior to September 30, 2021. It will also end if the covered individual becomes eligible for coverage under another group health plan during the subsidy period or becomes eligible for Medicare.

How Will Eligible Individuals Take Advantage of the Subsidy?

Eligible individuals have a special enrollment period beginning April 1, 2021 and would end 60 days after the date the revised notices are sent to qualifying individuals. Plan administrators must send special election notices to potentially eligible individuals. Existing COBRA notices are also amended to include subsidy information.

What Should Your Organization Do Now?

Like the COBRA subsidy in the American Recovery and Reinvestment Act of 2009, administrative hurdles are anticipated in implementing the subsidy provisions. You should start now to identify employees in the potentially eligible group – those who lost group health plan coverage due to involuntary termination or reduction in hours between November 1, 2019 to the present. It’s likely this group will need to receive the amended notice for the special enrollment period. COBRA administrators are working on updating their election forms and notices to send to individuals once you have identified those who may qualify.

Our compliance team will continue to follow the progress of the ARPA and will update this blog with key provisions and potential action items for you and your employees as the bill becomes law. Feel free to reach out to me directly or on LinkedIn, or to a member of our advisory team.

Like this blog? Share it!

Share on facebook
Share on twitter
Share on linkedin