The American Rescue Plan, which was signed into law on March 11, 2021, contains significant changes to COBRA. The biggest change is that employers must now provide assistance-eligible individuals with a 100% subsidy for COBRA premiums from April 1, 2021 to Sept. 30, 2021. The law also includes second chance coverage to assistance-eligible individuals who did not elect, or who elected and then dropped, their COBRA coverage. Assistance-eligible individuals include all people who are eligible for continuation coverage under COBRA because of an involuntary termination or an involuntary reduction in hours. This means that employers must subsidize the COBRA coverage of employees whose involuntary terminations had nothing to do with the COVID-19 pandemic. The subsidies are not available to those who were voluntarily terminated.
Under the American Rescue Plan, employers need to determine which employees lost health plan coverage on or after Nov. 1, 2019 due to an involuntary termination or reduction in hours. The employers must then send a notice to each of these employees and their covered family members within 60 days. After receiving the notice, employees will then have up to 60 days to elect COBRA coverage and receive the subsidies, which will be retroactive to April 1, 2021. If an assistance-eligible individual pays for any COBRA premiums between April 1, 2021 and Sept. 30, 2021, then the employer must refund those payments no later than 60 days after they have been made.
Qualifying former employees who are still within their COBRA maximum coverage period and who either did not elect, or who elected and then dropped, coverage will receive subsidized COBRA coverage on only a prospective basis. They will not have retroactive coverage to the date COBRA was first lost, and, instead, they will receive coverage only from the second election date.
Importantly, the American Rescue Plan does not extend COBRA’s time limits. This means that employer-subsidized coverage will expire on either Sept. 30, 2021, or, if it is before that date, the end of the person’s applicable COBRA coverage period. Also, the subsidy will end immediately if a qualifying individual becomes eligible for health insurance under another group health plan or Medicare. The former employee must notify the employer if they are no longer eligible for the subsidy.
Employers will be reimbursed for these subsidies through a dollar-for-dollar Medicare payroll tax credit. The Departments of Treasury, Labor and Health and Human Services are obligated to issue regulations and guidance to help employers navigate these COBRA changes. For example, the Department of Labor must issue model notices to assist employers by no later than April 10, 2021.
We will be staying on top of the American Rescue Plan and the upcoming notices, guides, and regulations from the U.S. Government. If you have any questions about how these changes to COBRA subsidies may impact your business, do not hesitate to contact Alan Rauss (216.736.7221 / amr@kjk.com) or Demetrius Robinson (614.427.5749 / djr@kjk.com), who head our Employment and Tax Departments.
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