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What Employers Need to Know About Their New COBRA Obligations Under ARPA

By: Mike Meltser, Attorney

Under the American Rescue Plan Act of 2021 (ARPA), employers with more than 20 employees have a new obligation to provide subsidized COBRA coverage beginning April 1, 2021.

What does COBRA require?

The COBRA law requires an employer to offer continuation of coverage under group health plans when coverage is lost due to a covered employee’s reduction in work hours or termination of employment. The standard amount of time that continuation of coverage lasts is 18 months.

COBRA is typically expensive for former employees, as employers are permitted to charge up to 102% of the costs of coverage.

What does ARPA change about an employer’s COBRA requirement?

The main change with the new law is that during the Subsidy Period, April 1, 2021 through September 30, 2021, ARPA requires employers to cover 100% of the eligible employee’s COBRA cost for up to six months. This requirement applies if an employee loses coverage due to a reduction in hours or involuntary termination and elects COBRA continuation.

Who pays pay for this subsidized COBRA?

Ultimately, the federal government will. ARPA requires employers to pay all COBRA premiums for the Subsidy Period up front. However, similar to the rules under the FFCRA and the CARES Act, employers will receive dollar-for-dollar credits on the employer’s quarterly payroll tax filings.

The Treasury Department will provide additional guidance for employers regarding these tax credits this year.

Are all former employees eligible?

No. If an employee is terminated for gross misconduct, that employee is not eligible for COBRA. In addition, the subsidy is not available to employees who voluntarily terminate their employment.

Please explain how the eligibility works under the Subsidy Period.

It is critical to remember that the subsidy is not limited to involuntary terminations or reductions in hours that occur on or after April 1, 2021. Individuals who qualify will now have the chance to retroactively elect the fully subsidized COBRA, which begins on April 1, 2021. This includes employees who did not elect COBRA within their original 60-day window.

Generally speaking, the subsidy will be available for those employees who were first eligible for COBRA coverage in November 2019 or later. This is because these terminated employees will still be within their maximum COBRA period of 18 months.

This concept is best illustrated through the following example: an employer terminates an employee on January 1, 2021. For the first three months after this date, the former employee must pay the full cost of COBRA continuation. However, this former employee now has the right to receive fully subsidized COBRA during the Subsidy Period of April 1, 2021 through September 30, 2021.

What happens if terminated employee stopped paying their COBRA premiums?

As long as the terminated employee is within their maximum COBRA period (generally 18 months), this employee may be eligible to retroactively elect the fully subsidized COBRA coverage starting on April 1, 2021.

What happens if the terminated employee on subsidized COBRA coverage finds a new job?

Anyone who becomes eligible for other group health coverage, for example, through a new job, is no longer eligible for the subsidized COBRA coverage. ARPA requires terminated employees to notify the plan administrator once they are eligible for other group health coverage. This includes Medicare.

Must employers provide notice to former employees who qualify for subsidized COBRA coverage?

Yes.

Employers must provide eligible former employees whose COBRA qualifying event occurred before April 1, 2021 with additional information by May 31, 2021.

The Department of Labor will issue a model notice by mid-April 2021.

Does the COBRA subsidy cover medical, dental, and vision coverage?

We do not know yet. The subsidy will cover at least medical coverage.