COBRA Subsidy Provisions of the American Rescue Plan Act (ARPA)

The American Rescue Plan Act of 2021 (ARPA), signed into law on March 11, 2021, took effect on April 1, 2021. One provision of the ARPA allows individuals and family members who have been involuntarily terminated or experienced a reduction in work hours to continue receiving health insurance through their employer with a 100% subsidy of their COBRA or similar state continuation of coverage (mini-COBRA) program premiums.

Due to the often high cost of health insurance premiums, many employees choose not to elect COBRA. The ARPA subsidy enables those individuals that previously declined or cancelled coverage to re-enroll in COBRA coverage. This provision will create a number of administrative challenges for employers. As more details and clarification are released, Rue Insurance will continue to provide you with the information you need to meet the employer requirements. If you need additional assistance, please contact your Rue representative. 

Summary of Key Provisions of the COBRA Subsidy

• The subsidy will cover 100% of the COBRA or State Continuation premiums for employees and qualified dependents whose health insurance coverage loss was a result of an involuntary termination of employment or reduction in work hours.

• The subsidy does not apply to:
  • Individuals whose job loss was voluntary or the result of gross misconduct; or
  • Individuals who become eligible for Medicare or group health plan coverage elsewhere; or
  • Individuals who lost coverage due to death of employee, divorce or ceasing to be a dependent.

• The subsidy period will begin on April 1, 2021 and end on September 30, 2021.

• There will be an extended enrollment period for any eligible individual who did not previously elect COBRA coverage or who elected and discontinued coverage. The extended enrollment period begins April 1, 2021, and runs until 60 days after the date individuals receive notice of the availability of the COBRA subsidy.

• In general, these subsidies apply to the continuation of medical, dental and vision coverage.

• The Federal Government will reimburse employers (and in some cases, carriers) for the subsidies through an employer tax credit against Medicare payroll taxes.

Action Steps

1. Employers should familiarize themselves with the COBRA subsidy provisions of the ARPA. 

2. To prepare for the special enrollment period, employers should review their employment records and identify those employees who lost health insurance coverage due to termination or a reduction in hours beginning November 1, 2019 to present.

3. Those identified employees should have their status labeled as either a voluntary or involuntary termination to determine if they are “assistance-eligible individuals” (AEI’s).

4. Those that qualify as AEI’s will need to receive notification about the availability of the subsidy and the extended election period. Model notification will be forthcoming from the Department of Labor on April 10^th, so notification should wait until that model notice has been released.

5. Further details will be released regarding a required subsidy expiration notice, plan enrollment steps and instructions to receive the subsidy tax credit.

Important Dates to Consider

November 1, 2019

• Any employees that lost coverage due to an involuntary termination or reduction in hours after this date are eligible for 100% subsidized COBRA or State Continuation coverage.

April 1, 2021 

• ARPA 100% subsidy begins to cover COBRA or State Continuation premiums.

April 10, 2021 

• Department of Labor will issue Election model notice (within 30 days of ARPA enactment date).

April 25, 2021 

• Department of Labor will issue Subsidy Expiration model notice (within 45 days of ARPA enactment date).

Tax Credit

The ARPA COBRA subsidy will be funded through a tax credit to either employers or insurance carriers. The credit is taken against payroll taxes. It can be advanced (according to forms and instructions to be provided by federal agencies) and is fully refundable. The credits will be provided each quarter in an amount equal to the premiums not paid by assistance-eligible individuals. The following is an outline of who receives the tax credits:

• If a group health plan is subject to federal COBRA, then the employer pays the COBRA premium for the AEI’s that elect COBRA coverage through September 2021 and receives the tax credits. This applies regardless of whether the plan is fully insured, level-funded or self-insured.

• If a level-funded or self-funded plan is not subject to federal COBRA, but the state requires continuation coverage, then the employer pays the State Continuation premium for the AEI’s that elect coverage through September 2021 and receives the tax credits. 

• If a fully insured plan is not subject to federal COBRA but the state requires continuation coverage, then the insurer pays the State Continuation premium for the AEI’s that elect coverage through September 2021 and receives the tax credits. The employer is not responsible for paying any State Continuation premium for AEI’s that elect coverage, nor can the employer claim a subsidy tax credit.

Next Steps

Rue Insurance will continue to keep you apprised as information becomes available. If you have any questions, please contact your Rue Insurance representative at (609) 586-7474. 

If you currently do not have your benefits program with Rue, you should speak with your Rue representative about how our knowledgeable Employee Benefit Advisors can assist your organization in staying up to date with the most recent compliance requirements and becoming Ready with Rue.

For more information about the COBRA Subsidy Provisions of the American Rescue Plan Act click here.