The American Rescue Plan Act of 2021 (ARPA) provides a Federally-paid (through refundable tax credits) 100% subsidy for the premiums for COBRA coverage under group health plans for “Assistance Eligible Individuals” for the 6-month period beginning April 1, 2021 and ending September 30, 2021. “Assistance Eligible Individuals” are group health plan beneficiaries who:
- Have a COBRA qualifying event that is a reduction in hours or an involuntary termination of employment;
- Elect COBRA continuation coverage;
- Are not eligible for Medicare; and
- Are not eligible for coverage under any other group health plan (e.g., a plan sponsored by a new employer or a spouse’s employer).
ARPA requires that no later than May 31, 2021 group health plan sponsors provide a notice of the extended COBRA election period and the availability of the premium assistance to any Assistance Eligible Individual who had a reduction in hours or an involuntary termination of employment prior to April 1, 2021. Individuals who had a reduction in hours or involuntary termination occurring after September 30, 201 and prior to April 1, 2021 but either did not make a COBRA election or made the election but did not continue the COBRA coverage for the entire coverage period are Assistance Eligible Individuals and must receive the notice. ARPA gives these individuals a second COBRA election opportunity for the balance of their COBRA coverage period.
The May 31, 2021 notice requirement does not apply to individuals whose COBRA coverage period (typically 18 months) ended before April 1, 2021. This notice generally does not have to be provided to individuals whose reduction in hours or involuntary termination occurred prior to October 1, 2019.
An individual who has had, or will have, a qualifying event on or after April 1, 2021 and before September 30, 2021 should receive an ARPA-compliant COBRA notice within the ordinary timeline applicable to qualifying events. The DOL on April 12, 2021 published new Model COBRA Notices that provide the required information about the ARPA subsidy. These can be found at https://www.dol.gov/agencies/ebsa/laws-and-regulations/laws/cobra/premium-subsidy.
On May 18, 2021 the IRS published Notice 2021-31, providing guidance on many of the questions about the operation and implementation of ARPA’s temporary COBRA premium assistance, such as what constitutes an involuntary termination and what constitutes eligibility for other group health plan coverage.
It is critical that plan sponsors provide the required Notice by the May 31 deadline. Failure to provide the extended COBRA election period notice by May 31, 2021 to individuals who had a reduction in hours or involuntary termination occurring after September 30, 201 and prior to April 1, 2021 exposes the employer/group health plan sponsor to an excise tax penalty of $100 per affected individual per day. The DOL will treat failure to provide the notice as a failure to meet the COBRA notice requirements.