Under the American Rescue Plan Act of 2021 (ARPA), which was signed into law on March 11, 2021, employers must provide a 100% subsidy to eligible employees to cover their COBRA premiums between April 1 and September 30 of this year. Employers will pay the full cost of the premiums and then obtain reimbursement through payroll tax credits.
Employees who resign are not eligible for the subsidy. The subsidy is only available to employees who are terminated involuntarily or who become eligible for COBRA due to a reduction in hours.
When an employee becomes eligible for other group health plan coverage or Medicare, the subsidies will stop.
There are some important to notice requirements for employers or their plan administrators to take note of:
- Employers or their plan administrators must begin using updated COBRA notices that describe the subsidy. The Department of Labor will issue new model notices no later than April 10.
- By May 31, employers or their plan administrators must also send notices to employees who were involuntarily terminated, or who became COBRA-eligible due to a reduction in work hours, in the past 18 months but either (a) did not choose COBRA coverage at the time, or (b) elected COBRA coverage but then discontinued it. ARPA allows these employees another chance to enroll in COBRA continuation coverage, and they are entitled to subsidized premiums from April 1 through September 30 unless their 18-month COBRA eligibility period ends earlier or they become ineligible for another reason. Practically speaking, this means that the look back period begins in November 2019 because the 18-month period for individuals who were involuntarily terminated or had their hours reduced in November 2019 would end on April 30, 2021, thereby allowing them one month of subsidized coverage.
- Employers or their plan administrators must send notices to employees when their subsidies are about to end. Specifically, these notices must be sent no earlier than 45 days but no later than 15 days before the subsidy will expire. The Department of Labor will issue new model notices no later than April 25.
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