American Rescue Plan: Free COBRA Coverage
By Lisa Calick, Director, HR Advisory
The American Rescue Plan Act (ARPA), now signed by President Biden, includes important changes which employers need to be aware of regarding COBRA coverage for certain eligible employees and their dependents. It provides up to 6 months of free COBRA coverage for Assistance Eligible Individuals, a special COBRA enrollment window, and new notice obligations.
Premium Subsidy for Assistance Eligible Individuals
One of the major provisions includes a new premium subsidy equal to 100% of the cost for COBRA coverage for individuals who lose group health coverage as a result of an involuntary termination of employment or due to a reduction in hours. This subsidy will be available beginning April 1, 2021 and ending September 30, 2021. During these months, any individual who is eligible for this subsidy will not be required to pay their applicable COBRA premiums. The subsidy may end sooner than September, however, if an individual becomes eligible for coverage under another group health plan or Medicare, or once the maximum period of COBRA coverage has ended (Note: There is no extension to the normal period of COBRA coverage that applies when coverage is lost due to a job loss or reduction in hours).
The Act also provides a special enrollment period, a second window of time an Assistance Eligible Individual can enroll in COBRA coverage prospectively, in order to take advantage of the subsidy. This includes qualified individuals who did not elect COBRA coverage during their original election period, as well as those who had elected COBRA yet discontinued their coverage thereafter. These individuals would be able to make a new election during the 60 days after receiving the new employer notice.
Any employee who has had an involuntary loss of employment as far back to when the pandemic began may now qualify for this subsidy for any months of COBRA coverage between April 1, 2021 and September 30, 2021. As an example, an employee who was laid off in May 2020 may potentially be eligible for the entire subsidy as the initial 18-month COBRA period would include the months April through September. Additionally, an employee whose COBRA coverage began earlier than May 2020 may also qualify for the premium subsidy for any remaining months of coverage that fall during the subsidy period.
Premium payments are paid by employers, insurers or multiemployer plans, and can be recovered through payroll tax credits. We expect more guidance on this process to come.
Change in Plan Option
Employers will now also have the option to allow these qualified individuals up to 90 days following the receipt of the COBRA notice to enroll in a different group health plan than they previously had at the time of loss of coverage. This new plan option would need to have a premium equal to, or less than, the premium for the plan the employee was enrolled in at the time of the loss of coverage.
New Notice Requirements
Employers will need to be aware of new notice requirements to take effect 60 days after the April 1 date of enactment, and should amend their COBRA notice forms to comply with the Act:
- Notification to Assistance Eligible Individuals about the COBRA premium subsidy as well as the special enrollment window.
- Notification to individuals whose premium subsidy will end prior to September 30, 2021, unless their subsidy is ending due to eligibility for other coverage.
- Employers who choose to permit individuals to enroll in a different plan option at a lower cost will need to include that information in the notice provided.
The Department of Labor is required to issue model COBRA notices addressing the subsidy. It is also expected that additional regulations and guidance will be published on the application and administration of the COBRA provisions of the Act.
Companies who outsource their COBRA administration should work with their administrator to ensure that the required changes are being implemented. It is important, however, to ensure that only those individuals who meet the criteria for assistance are notified. Since not all plan administrators may have details on the reason for loss of coverage, employers should be proactive about identifying who those individuals are.
Employers should also work with their insurance carrier to confirm that coverage will continue to be in effect during the subsidy period when COBRA premium payments are not being made by the individual.
As additional guidance is made available, we will continue to provide updates.