Under the American Rescue Plan Act of 2021, employees who have lost or lose their health insurance coverage because of a job loss or reduction in hours now have some relief in the form of a COBRA subsidy, which will go into effect on April 1, 2021. This federally funded subsidy covers 100% of an eligible employee’s COBRA premium for up to six months. Additionally, family members who also have lost or lose their coverage will also be eligible for the subsidy. Here is what else health insurance plans/plan sponsors should know.
Other Key Eligibility Criteria
- The employee must become eligible for COBRA continuation coverage on or after November 2019 for a reason other than voluntary termination of employment, and must elect such coverage before the subsidy ends on September 30, 2021.
- The period of COBRA coverage for which the employee would be entitled (i.e., 18 months) must include any month between April and September 2021. This criterion holds even if the employee did not elect COBRA when first eligible, or if the employee elected but subsequently discontinued coverage before April 1, 2021.
- Any COBRA continuation coverage elected during the extended election period shall not extend beyond the maximum period of COBRA continuation coverage otherwise applicable if an employee elected and did not discontinue coverage.
The Subsidy Amount, Term and Payment
Employees will be credited with a 100 % subsidy of their COBRA premium for a maximum of six months. The term would be shorter for individuals whose COBRA coverage ends earlier than September 2021 or if the individual becomes eligible for coverage under another group health plan or Medicare. It is the individual’s responsibility to inform their group health plan if they become eligible for coverage under another plan or with Medicare. In certain circumstances, an employee may elect to enroll in a different employer-sponsored coverage and remain eligible for the subsidy. Individuals who are eligible for excepted benefits (e.g., limited-scope dental or vision overage, health flexible spending arrangement) remain eligible for the subsidy.
Payment of the new COBRA subsidy is paid to the group health plan/plan sponsor as a credit against quarterly payroll taxes. In multiemployer plans, the employer is eligible for the credit. In those instances when a credit exceeds the amount of payroll taxes due, the credit is refundable. Additionally, the credit can be advanced under rules to be set by the Treasury Department.
Group Health Plan Notification Requirements
The American Rescue Plan Act of 2021 requires group health plan sponsors to notify any individual who is entitled to elect COBRA continuation coverage of the availability of premium assistance of their eligibility for the COBRA subsidy between April 1, 2021 and September 30, 2021. They must provide this notice to all individuals who are or become eligible due to a job loss or reduction of hours resulting in their loss of coverage before April 1, 2021. Plans are obligated to notify individuals if their subsidy will end before September 30, 2021 but are not required to issue a notification if their subsidy ends due to an individual becoming eligible for other coverage.
For group health plan administrators, it is important to identify individuals who need to be notified about the new COBRA subsidy for at least one month. It is recommended that plan administrators look back to November 2019 for any individual who had or could have had COBRA as this date to April 1, 2021 represents 18 months of coverage. Group health plans should consider whether they want to allow individuals to enroll in a different, but not more expensive, plan option than their previous plan, and if so, inform eligible individuals of this option as well.