The American Rescue Plan Act’s Changes To COBRA
The American Rescue Plan Act of 2021 (“ARPA”), signed into law on March 11, 2021, made several key changes to the Consolidated Omnibus Budget Reconciliation Act (“COBRA”). A summary of the major changes are as follows:
Between April 1 and September 30, certain COBRA eligible individuals (or those who are already receiving COBRA continuation coverage) will receive a 100% subsidy of the cost of COBRA coverage, including the 2% administration charge. To be “COBRA eligible” individuals must meet the definition of a “qualified beneficiary” under COBRA. Generally, an individual is qualified if termination was involuntary (other than for gross misconduct) or if there was a reduction in hours.
The subsidy is not available if the individual is eligible for other group health coverage or Medicare.
Between April 1 and September 30, employers are required to cover all of an eligible employee’s cost of coverage under COBRA, should an employee elect it. The subsidy will apply to both insured and self-insured plans. Note that although a plan may not be subject to COBRA, it may still be subject to continuation coverage under state law.
Most employers will be reimbursed for the COBRA subsidy through a tax credit that applies against the employer’s share of the Medicare hospital insurance tax. It is a dollar-for-dollar reimbursement. If an employer’s COBRA subsidy tax credit exceeds the Medicare hospital insurance tax they owe, the excess can be claimed as a tax credit and may be advanced as well.
Employees already enrolled in COBRA can change their elected option to a cheaper option (or to an option that is at least equally expensive). The cheaper option must be available to similarly situated active employees. The cheaper option cannot be a flexible spending arrangement, a qualified small-employer health reimbursement arrangement, or coverage that only provides excepted benefits.
ARPA requires that notice be sent to qualified individuals who became entitled to elect COBRA before April 1, 2021, because they are entitled to change their minds in light of ARPA. The notice must be sent within 60 days of April 1st. The Department of Labor (“DOL”) is going to issue “model notices” that employers can use.
Additional DOL and IRS guidance regarding these changes is expected soon. If you have any questions regarding any of the changes made under ARPA, COBRA eligibility, or required notices, contact Nikole Canute, Scott Dwyer, Nate Wolf, or Dominic Clolinger for assistance.