The American Recue Plan of 2021 (ARPA) imposes new COBRA coverage requirements on employers beginning on April 1, but offers reimbursement for the cost through refundable tax credits. Employers should immediately ensure they are providing the required subsidies for eligible employees and preparing to fulfill the notice requirements. Employers should also be tracking information and preparing to file credit claims.
The ARPA was enacted March 11, 2021, and requires employers to provide a 100% COBRA premium subsidy (including the 2% administrative fee) and additional COBRA enrollment rights to certain employees who lost group health plan coverage due to involuntary termination or a reduction of hours. The new, temporary COBRA requirements apply from April 1, 2021, through Sept. 30, 2021 (the “Subsidy Period”). Employers will be reimbursed through fully refundable payroll tax credits.
COBRA premium subsidy
The ARPA requires employers who are subject to federal COBRA or state continuation coverage (collectively referred to here as “COBRA”) to stop charging eligible individuals and beneficiaries for COBRA coverage during the Subsidy Period. Generally, all businesses that normally employ 20 or more employees and offer a group health plan are subject to COBRA except for certain church plans and federal government plans. Employers that normally employ fewer than 20 employees and offer a group health plan may be subject to similar state continuation coverage requirements depending on applicable state law. The subsidy is mandatory regardless of whether the plan is fully or partially insured, or self-insured.
During the Subsidy Period, assistance eligible individuals must receive a 100% subsidy of their required COBRA premiums (including the 2% administrative fee). An assistance eligible individual includes any individual who experienced a qualifying event due to involuntary termination or reduction in hours, and who is still within their COBRA continuation window (generally 18 months following loss of coverage) during the Subsidy Period, even if that person did not timely elect COBRA or let their coverage lapse prior to April 1, 2021. Employers pay 100% of the assistance eligible individual’s COBRA premiums during the Subsidy Period and will be reimbursed through payroll tax credits.
The COBRA subsidy for an assistance eligible individual ends on the earliest date of these options:
- Sept. 30, 2021
- The date the individual is eligible for coverage under any other group health plan (excluding a flexible spending arrangement or a qualified small employer health reimbursement arrangement) or Medicare
- The date the individual reaches the end of their maximum COBRA coverage period
If an eligible individual pays any premiums for a period of coverage during the Subsidy Period, those premiums must be refunded to the individual within 60 days of payment.
Extension of COBRA election period
The subsidy is available to those individuals who newly qualify as assistance eligible individuals on or after April 1, 2021, as well as those assistance eligible individuals 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. With respect to those assistance eligible individuals who do not have a COBRA election in place as of April 1, 2021, 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. These individuals may elect or re-elect COBRA continuation coverage at any point between April 1, 2021, and 60 days after the required notice (discussed below) is provided to them.
Optional change in plan enrollment
ARPA allows employers, at their discretion, to allow an assistance eligible individual to change to another plan option rather than retain the coverage they enrolled in at the time of their COBRA qualifying event, but no later than 90 days after notice is provided to the individual. All of the following conditions must be met in order for an assistance eligible individual to enroll in different coverage:
Updated COBRA notice requirements
- The employer decides to permit such a change in coverage
- The premium for the alternative coverage does not exceed the premium for the coverage in which the individual was enrolled at the time of their COBRA qualifying event
- The different coverage is also offered to similarly situated active employees of the employer at the time of the election
- The alternative coverage is not any of the following:
- Coverage that provides only excepted benefits
- A qualified small employer health reimbursement arrangement (QSEHRA)
- A flexible spending arrangement
In addition, the ARPA requires the plan administrator to provide a written notification regarding the availability of the COBRA premium subsidy (including to those eligible for the extended election period), the option to enroll in an alternative plan coverage option, if permitted by the employer, and the expiration of the subsidy.
During the Subsidy Period, COBRA election notices must include all the following:
- The forms necessary for establishing eligibility for premium assistance
- The name, address and telephone number necessary to contact the plan administrator
- A description of the extended election period
- A description of the obligation of the qualified beneficiary to notify the employer of their eligibility for other group health coverage or Medicare, and of the $250 penalty for failure to carry out the obligation
- A description of the qualified beneficiary’s right to a subsidized premium and any conditions on entitlement to the subsidized premium
- A description of the option of the qualified beneficiary to enroll in different coverage, if permitted by the employer
The DOL is required to prescribe model COBRA election notices within 30 days of the passage of the ARPA.
Additionally, employers must provide a written notice to assistance eligible individuals within 15 to 45 days prior to the expiration of their premium assistance. This notice must include both:
- A notification that the individual’s premium assistance will expire soon and a prominent identification of the date of such expiration
- A notification that the individual may be eligible for coverage without any premium assistance through COBRA continuation coverage or coverage under a group health plan
The DOL is required to prescribe model COBRA premium assistance expiration notices within 45 days of the passage of the ARPA.
The employer is eligible to claim a fully refundable tax credit for both fully-insured and self-funded coverage where the employer’s group health plan is subject to COBRA under the internal revenue code (IRC), the U.S. Employee Retirement Income Security Act of 1974, or the Public Health Service Act. For a multi-employer plan, the plan applies for the tax credit. For state continuation of coverage, the insurer would cover the premium and apply for the tax credit.
The tax credit is applied against the 1.45% Medicare tax. If the amount of the credit exceeds the employer’s Medicare tax for any calendar quarter, the excess is treated as an overpayment and refunded to the employer. Further guidance is needed, but it is anticipated that employers will file for the tax credit utilizing Form 941. Under rules to be determined by the Treasury Department, the tax credit may be advanced to the employer or insurer.
The ARPA also includes a provision denying a double benefit. Employers may not claim a premium assistance credit for the same amount that is taken into account as either of these:
- Qualified wages for the Employee Retention Credit
- Qualified health plan expenses under the paid leave provisions of the Families First Coronavirus Response Act
The employer or insurer entitled to the credit generally must include the amount of the credit in its taxable income.
Assistance-eligible individuals who receive COBRA premium assistance are not eligible for the health care tax credit under IRC 35 for the period covered by the assistance. In addition, COBRA premium assistance is not includible in the recipient’s taxable income.
Employers should update their notices following the release of updated model notices. Employers should also implement the subsidy provisions and track their premium assistance in order to claim the tax credit.
For more information, contact:
Human Capital Services
+1 312 602 8167
Washington National Tax Office
+1 202 521 1554
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