Archived Insight | March 11, 2021

100 Percent COBRA Subsidy Starts April 1

The American Rescue Plan Act of 2021, which was signed into law on March 11, 2021, includes a six-month federally financed COBRA subsidy covering the full COBRA premium for eligible individuals.

The new COBRA subsidy will be available starting April 1, 2021.

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Eligibility for the COBRA subsidy

Employees who lose (or have already lost) their health coverage due to job loss or reduction in hours are eligible for this subsidy, as are family members who also lose (or lost) coverage along with the employee. However, the subsidy is not available if the employee voluntarily terminates employment.

The temporary subsidy is available to any such employee (or family member) who:

  • Is enrolled in COBRA or becomes eligible for COBRA on or after April 1, 2021, and before the subsidy ends on September 30, 2021
  • Became eligible for COBRA prior to April 1, 2021, and the period of COBRA coverage to which they would be entitled (18 months) includes any month between April and September of 2021  even if the individual did not elect COBRA when it was initially offered or elected COBRA but discontinued it before April 1, 2021

Amount of the subsidy

During the six-month period from April through September of 2021, the federal government will pay the full COBRA premium. The earlier House-passed version of this legislation called for a federal subsidy of 85 percent, but this was expanded to 100 percent as the bill moved through the Senate.

How long the subsidy will last

The subsidy will last for six months at most. The subsidy would end earlier if the individual’s maximum period of COBRA coverage (generally, 18 months) ends earlier than September 2021. It would also end earlier if the individual becomes eligible for coverage under another group health plan or Medicare. Individuals are required to notify their group health plan if they become eligible for such coverage and will be subject to penalty if they fail to do so.

Eligibility for excepted benefits, such as limited-scope dental or vision coverage or a health flexible spending arrangement, does not terminate subsidy eligibility.

New notice requirements for group health plans

The legislation requires group health plans to provide a notice about the availability of the new subsidy to any individual who becomes eligible to elect COBRA between April 1, 2021 and September 30, 2021. Plans also have to provide the notice to individuals who are eligible for the subsidy due to job loss or reduction of hours followed by a loss of coverage occurring before April 1, 2021.

The federal government is required to issue model notices within 30 days of enactment (April 10, 2021).

Plans are also required to notify individuals if their subsidy will terminate before September 30, 2021. This notice is not required if the subsidy will terminate due to the individual’s eligibility for other coverage.

The federal government is required to issue a model for this notice within 45 days of enactment (April 25, 2021).

Payment of the subsidy

The subsidy will be paid to the plan or plan sponsor as a credit against quarterly payroll taxes. Multiemployer plans and governmental plans are eligible to receive the credit. If the credit exceeds the amount of payroll taxes due, the credit is refundable. It can also be advanced under rules that will be set by the Treasury Department.

Implications for group health plans

Plan administrators should identify the individuals who will need to receive a notice about the new subsidy. This means identifying any eligible individual described above who is eligible for the subsidy for at least one month. Generally, this means anyone who had — or could have had — COBRA as far back as November 2019, because their 18 months of coverage would extend through April 2021.

In addition to providing the required notices, plan sponsors of group health plans should also consider whether they will permit individuals to enroll in a different (but not more expensive) plan option than the one in which they were enrolled when coverage was lost. Plan sponsors have the option to permit this, and if they permit it, need to include the availability of that option in the notices they send.

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This page is for informational purposes only and does not constitute legal, tax or investment advice. You are encouraged to discuss the issues raised here with your legal, tax and other advisors before determining how the issues apply to your specific situations.