ARPA Provides COBRA Subsidy at 100%

Insights | ARPA Provides COBRA Subsidy at 100%

Author: Shelly Hodges-Konys, CBC, Director of Compliance

Yesterday, Congress passed the American Rescue Plan Act (ARPA) and the bill is expected to be signed by President Biden in the coming days.  The bill provides a 100% COBRA premium subsidy for eligible employees beginning April 1, 2021, and ending on September 30, 2021. The new premium subsidy leaves employers with many questions - not just about the compliance impacts, but the administrative and financial implications of the bill as well. 

Let’s start with the subsidy. Employers advance the subsidy to eligible employees and the subsidy is in turn provided to employers through a payroll tax credit. The credit is applied on the employers’ quarterly taxes.  If the credit exceeds the payroll taxes due, any additional amounts are refunded to the employer when the Form 941 is submitted.  

Next, it’s important to know which employees are eligible to receive a subsidy.  Not all individuals that are COBRA eligible will be eligible for subsidy.  The bill provides that individuals that experience a COBRA qualifying event due to involuntary termination of employment or reduction in hours are eligible for the subsidy.  But, those employees who terminate employment voluntarily are not eligible. 

As mentioned above, the subsidy is available for six months at most.  It begins on April 1, 2021, and will end the earlier of:

·       An individual’s maximum COBRA coverage period; or

·       September 1, 2021. 

As a reminder, the maximum coverage period for many COBRA qualifying events is 18 months.  COBRA subsidies will end early if the individual becomes eligible for other group health plan coverage or Medicare.  And, while former employees are generally required to notify their employer if they become eligible for such coverage, the ARPA penalizes individuals $250 for failure to provide notice. If the failure to provide notice is intentional, the penalty is the greater of $250 or 110% of the subsidy amount.   

Additionally, employers may allow subsidy eligible participants the ability to choose a different group health plan than the individual’s current plan. However, employers are not required to provide this choice.  The premium for the new plan cannot be higher than the premium for the employee’s previous plan, among other restrictions. 

The Act also requires notification to individuals that may be eligible for the subsidy.  Fear not, the Department of Labor is providing model notices within 30 days from the date of enactment.  The notice must include necessary forms for establishing eligibility for assistance, contact information for the plan administrator, a description of the extended election period, and a description of the option to enroll in other coverage (if offered). Such notice must be provided to all individuals who may be eligible for subsidy (those who were involuntarily terminated or lost coverage due to a reduction in hours) including former employees who elected COBRA and discontinued it. 

Employers are also required to a send notices to enrolled former employees if their subsidy will expire prior to September 21, 2021.  This notice is not required in situations where coverage is ending due to eligibility for other group health plan coverage or Medicare.

One of the big questions still hanging in the air is how these new COBRA requirements are impacted by previously issued Department of Labor extensions of time. 

What Employers Should Do Now

Unfortunately, there is not much to do until model notices are issued. Employers can:

·       Begin conversations with their COBRA administrators,

·       Start compiling a list of potential subsidy eligible individuals for purposes of providing the required notices, and

·       Make any necessary budget adjustments to cover additional administrative costs (COBRA administrators are still trying to figure this out, but at a minimum, we expect that there will be postage and mailing charges)

Otherwise, the only thing we can do is take a deep breath, buckle our seatbelts, and settle in for the ride! 

Update: Thursday afternoon, March 11, 2021, President Biden signed the American Rescue Plan Act.  

Please contact your HORAN representative for additional information.

The information contained in this document is informational only and is not intended as, nor should it be construed as, legal or accounting advice. Neither HORAN nor its consultants provide legal, tax nor accounting advice of any kind. We make no legal representation, nor do we take legal responsibility of any kind regarding regulatory compliance. Please consult your counsel for a definitive interpretation of current statute and regulation, and their impact on you and your organization.