Important COBRA Subsidy Update

What is COBRA?

The Consolidated Omnibus Budget Reconciliation Act of 1985, or COBRA,  is a federal law that requires employers of 20 or more employees who offer healthcare benefits to offer the option of continuing this coverage to individuals who would otherwise lose their benefits due to termination of employment, reduction in hours or certain other events. As an employee and an employer, it’s important to be aware of laws like these and their details!

What is the COBRA Subsidy Update?

On March 11, 2021, President Joe Biden signed into law a new economic stimulus package known as the American Rescue Plan Act (ARPA). As part of the new law, it creates a federal subsidy that will cover 100% of the premium for certain COBRA participants for a temporary period.

The Departments of Labor, Treasury and Health and Human Services (the “tri-agencies”) are expected to issue additional procedural and administrative guidance in the coming weeks, but we have outlined some core elements of the law below for your review:

  • The subsidies are only available to individuals and their family members who became eligible for COBRA coverage because of an involuntary termination of employment or a reduction in hours.
  • The subsidies are available for coverage periods between April 1, 2021 and September 30, 2021.
  • Subsidies are not available to COBRA participants who are eligible for another group health plan or Medicare. COBRA participants must inform the employer or plan administrator of their eligibility for other coverage or they could face a penalty for failure to notify.
  • A second 60-day election period must be offered to certain individuals who did not elect COBRA coverage during their initial election period or who terminated their COBRA coverage prior to the maximum duration permitted under the law. The individuals who must be offered a second election period are those who would be eligible for one or more months of subsidized coverage had they originally elected COBRA coverage and/or continued making COBRA premium payments. Coverage will be effective as of April 1, 2021 for these individuals who elect coverage, and they cannot be forced to pay back COBRA premiums prior to this date. The maximum duration of coverage for these individuals is 18 months (measured from the date of the original loss of coverage).
  • The Department of Labor will develop new model notices within 30-45 days of the enactment of the law. These notices generally must be mailed by May 31, 2021 alerting the appropriate individuals of their potential eligibility for COBRA subsidies and/or their potential right to re-enroll in coverage and receive subsidies.
  • For self-insured plans, the employer must cover the premium of the COBRA participants. The employer will be reimbursed through a payroll tax credit. In essence, they lower their Medicare and Social Security tax obligation by the amount of the total subsidized premiums.
  • For fully insured plans, the process is less clear at this time. The insurance carrier is eligible for the payroll tax credit when coverage is fully insured. An insurance carrier would need to establish a process so that the employer is not charged a premium for subsidy eligible COBRA participants. Regulatory agencies may also provide additional procedural guidance.

It may also be important to point out that ARPA does not extend the maximum duration of COBRA coverage.

We expect the tri-agencies to issue additional guidance in the coming weeks, and we will keep you informed as new guidance becomes available. Flex will also notify our COBRA employer clients of any operational and/or administrative changes that will be necessary to implement as a result of this new law.

Feel free to contact us if you need help break down what this could mean for you!