ARPA COBRA Subsidy's Impact on Employer Health Plans

The American Rescue Plan Act of 2021 (ARPA) provides temporary COBRA continuation coverage premium assistance for certain eligible qualified beneficiaries. On April 7, 2021, the Department of Labor issued a FAQ and model notices for use with the COBRA subsidies. 

Which plans does this apply to?

The COBRA subsidy applies to all group health plans sponsored by private-sector employers or unions subject to COBRA under the Employee Retirement Income Security Act of 1974 (ERISA), and plans sponsored by State or local governments subject to continuation provisions under the Public Health Service Act (PHSA). This includes major medical, dental and vision plans. It does not apply to health flexible spending accounts (FSAs). 

Note for small employers: The subsidy isn’t limited to large group health plans. It also applies to comparable coverage under State “mini-COBRA” laws for small health plans exempt from COBRA. 

Who is eligible for the subsidy?

The subsidy is available for "Assistance Eligible Individuals" (AEIs). An AEI is a COBRA qualified beneficiary who, due to a reduction in hours (whether voluntary or involuntary) or involuntary termination of employment, becomes eligible for or already has effective COBRA continuation coverage during the period that began April 1, 2021 and ends September 30, 2021.

Individuals who were eligible to elect COBRA coverage that extends past April 1, 2021 due to a reduction in hours or involuntary termination but who had not yet elected as of April 1, 2021, or who had elected such coverage but discontinued it prior to April 1, 2021, are also eligible for the subsidy. These individuals can elect COBRA during an extended election period that began April 1, 2021 and ends 60 days after the employer provides a newly required notice alerting them that they qualify for COBRA premium assistance.

This means that qualified beneficiaries whose COBRA coverage started as long ago as November 2019 could qualify for the premium assistance.

Important: Each COBRA qualified beneficiary may independently elect COBRA continuation coverage. If a family member did not elect COBRA when first eligible and that individual would be an AEI, that individual has an additional opportunity to enroll and receive the subsidy without regard to elections by other family members.

When does it apply?

The premium assistance applies to periods of COBRA coverage on or after April 1, 2021 through September 30, 2021. 

Can the premium assistance expire before September 30, 2021?

Yes. An individual will not receive a subsidy for months of coverage beginning on or after the earlier of (1) the first date that the individual becomes eligible for either other group health coverage (other than excepted benefits, a QSEHRA, or a health FSA) or Medicare; or (2) the end of the applicable maximum COBRA continuation coverage period. The ARPA subsidy does not extend the applicable COBRA coverage period.

What are the notice requirements?

There are three notice requirements:

1. A general notice to qualified beneficiaries who become eligible for COBRA due to a reduction in hours or involuntary termination from April 1, 2021 through September 30, 2021. You may amend your current notice to include these provisions or send a supplemental notice.
2. A notice of the extended COBRA election period to AEIs who became entitled to COBRA before April 1, 2021 (including an individual who would be an AEI if COBRA were in effect), which must be sent no later than May 31, 2021 alerting them of the extended COBRA election period with premium assistance.
3. A notice of expiration of periods of premium assistance 15 - 45 days prior to premium assistance expiring.

Model notices are available here.

How is the subsidy provided?

The way the subsidy will work in practice is that AEIs will not be charged any applicable COBRA premiums during the subsidy period. Instead, employers (or plans or insurers) will front the cost of the subsidy amount. Employers will then be reimbursed by the federal government in the form of a dollar-for-dollar tax credit on the employer’s payroll tax filings for the amount of the COBRA subsidies.

Note for existing severance or similar arrangements: If severance benefits include the costs of COBRA coverage, employers will want to review those arrangements to determine whether any changes or adjustments may be needed in light of the COBRA subsidy (such as whether the severance arrangement calls for a flat amount to help cover an employee’s estimated COBRA costs and whether the employer will include that flat amount in the severance benefit in months when the subsidy is in effect).