The American Rescue Plan Act of 2021 (“ARPA”), signed by President Biden on March 11, 2021, includes a number of provisions designed to assist workers impacted by the COVID-19 pandemic. Among them is a new COBRA premium subsidy that pays for 100 percent of the applicable COBRA premium for eligible individuals with respect to coverage periods beginning April 1, 2021 and ending Sept. 30, 2021.
Employees are eligible for this assistance if they (1) become COBRA eligible during the Premium Assistance Period, (2) are currently enrolled in COBRA, or (3) are within their COBRA continuation period (generally 18 months) but did not elect or previously dropped COBRA coverage. Employees who were eligible for but did not elect COBRA coverage must do so within 60 days of the date they are notified of their right to subsidized payments. The subsidy only applies to employees (and their beneficiaries) who lose their coverage because of the employee’s involuntary termination or a reduction in the employee’s hours. The subsidy will not be provided to employees who voluntarily terminate their employment or to employees who are not eligible for COBRA because their employment was terminated for gross misconduct.
Written notification regarding the availability of the COBRA premium subsidy must be provided to all employees who are or will be eligible for COBRA coverage on April 1, 2021 within 60 days of April 1, 2021. This notice requirement may be satisfied by amending the employer’s current COBRA notice or by supplementing the current notice with a separate notice, and must include:
- The forms necessary for establishing eligibility for premium assistance;
- The name, address, and telephone number necessary to contact the plan administrator and any other person with relevant information regarding the premium subsidy;
- A description of the special 60-day election period;
- A description of the qualified beneficiaries’ obligation to inform the plan administrator if the qualified beneficiary becomes disqualified from coverage (i.e., gets another job that provides health care coverage);
- A description, displayed in a prominent manner, of a qualified beneficiary’s right to a subsidized premium and any conditions on the beneficiary’s entitlement to the subsidized premium; and
- A description of the qualified beneficiary’s option to enroll in different coverage, if permitted by the employer.
The employer must also provide notification of the expiration of the subsidy period no more than 45 days or less than 15 days before the subsidy period will expire.
Most employers will be reimbursed for the premium subsidy by a new tax credit that applies against the employer’s share of the Medicare hospital insurance tax. The credit is a dollar-for-dollar reimbursement of the qualified employee or beneficiary COBRA premiums that were waived pursuant to the ARPA subsidy. To the extent that the credit amount exceeds the employer’s Medicare hospital insurance payroll tax, the excess amount may be claimed as a tax credit. ARPA also includes a provision indicating that the credit may be advanced, pursuant to forms and instructions to be developed by the IRS.