ARPA creates COBRA subsidy


The American Rescue Plan Act of 2021 (ARPA) provides a COBRA subsidy for individuals who experience a loss of group health coverage due to reduced hours or involuntary termination, but the subsidy is provided by employers and recovered as a refundable employer Medicare tax credit.


The subsidy is available to “assistance-eligible individuals” who newly qualify on or after April 1, 2021, as well as those who qualified for COBRA before April 1, 2021, but either did not elect COBRA coverage during their original election period or let their coverage lapse prior to April 1, 2021.


ARPA requires employers, who are subject to federal COBRA or state continuation coverage (collectively referred to herein as “COBRA”), to stop charging assistance eligible individuals for COBRA coverage during the period beginning April 1, 2021, and ending Sept. 30, 2021 (the “Subsidy Period”). The subsidy is mandatory regardless of whether the plan is fully or partially insured, or self-insured.


The subsidy is equal to 100% of the premiums (including the permitted 2% administration fee) required for health care continuation coverage under COBRA (except for health flexible spending accounts) during the Subsidy Period. The required subsidy ends on the earliest of the following:


  • The date the individual becomes eligible for coverage under another group health plan or Medicare
  • The end of the maximum coverage period required under the regular COBRA rules, based on the date of the qualifying event
  • Sept. 30, 2021.

The subsidy is not taxable to the assistance eligible individual. In addition, if an assistance-eligible individual paid premiums for a period of coverage during the Subsidy Period, those premiums must be refunded within sixty days of payment.


With respect to those assistance eligible individuals who either did not elect COBRA coverage during their original election period or let their coverage lapse, plan sponsors must offer those individuals an additional election period of at least 60 days to elect COBRA coverage for any period of their original maximum COBRA coverage period that falls within the Subsidy Period.


In addition, during the Subsidy Period, the standard COBRA continuation coverage notice must include additional information that explains the availability of the premium assistance. The augmented COBRA notice generally must be provided within 60 days of April 1, 2021, and the Department of Labor is required to provide a model notice for this purpose. Failure to timely provide the augmented notice is treated as failure to meet the COBRA notice requirements.


Employers generally can recover the cost of the COBRA subsidy through a refundable credit against the employer’s portion of the Medicare Hospital Insurance Tax (i.e., the 1.45% Medicare payroll tax).





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