As part of the recently passed American Rescue Plan Act of 2021 (ARPA), many employees who have lost their jobs or whose hours have been reduced may be eligible for a 100 percent health insurance premium subsidy for up to six months of health insurance continuation coverage. Employers are required to notify certain employees and former employees of these rights and, in most cases, to advance the cost of the subsidy, which employers can recover through a payroll tax credit.
The subsidy is available for continuation coverage required by the federal COBRA law applicable to group health plans sponsored by private-sector employers or employee unions subject to COBRA because they have at least 20 employees. It also is available for continuation coverage required by state “mini-COBRA” laws for smaller health plans that are exempt from the federal COBRA. However, the law does not change or extend any state law requirements.
Between April 1, 2021 and September 30, 2021, these health plans must offer a 100 percent subsidy for “assistance eligible individuals” (AEIs) and their qualified beneficiaries (usually children and spouses) if the employees would otherwise be eligible for health insurance continuation coverage during this time period. Individuals qualify as AEIs if they have become eligible for COBRA or a state mini-COBRA due to involuntary termination of employment or reduction of hours. It is not necessary that the termination of employment or reduction in hours be due to COVID-19 – AEIs are eligible if they lose their jobs or their hours are reduced for any involuntary reason. The subsidy is not available to individuals who become eligible for continuation coverage due to a voluntary resignation.
For plans subject to the federal COBRA, employees who previously were terminated or had their hours reduced essentially receive a second chance to elect COBRA coverage now that a subsidy is available if the maximum period the employee would have been eligible for continuation coverage has not yet expired. Individuals who do not have a COBRA election in effect on April 1, but who would count as AEIs if they did, as well as individuals who had previously elected COBRA coverage but discontinued it prior to this date, also qualify for the subsidy.
While the premium subsidy can last through September 30, 2021, coverage may end earlier if an individual becomes eligible for another group health plan, Medicare, or reaches the end of their maximum COBRA or state mini-COBRA continuation coverage period.
The employer or plan will advance the premium subsidy amount and then be reimbursed by the federal government through a refundable tax credit on the employer’s payroll taxes. The employer will also receive the tax credit for self-insured plans and insured plans subject to COBRA, while the insurer will receive the credit for small insured plans subject only to state mini-COBRA laws.
Employers are required to notify qualified beneficiaries about the premium subsidy. The notice requirements include multiple obligations:
- A notice to qualified beneficiaries who become eligible for COBRA or a state mini-COBRA as a result of involuntary employment termination or reduced hours from April 1, 2021 through September 30, 2021. This notice must include a description of the right to receive the premium subsidy and a form for requesting the subsidy. This notice is in addition to the general COBRA notice requirements.
- A notice of the extended COBRA election period to any AEI who qualified for COBRA before April 1, 2021 but did not elect COBRA continuation coverage. This notice must be sent by May 31, 2021. This notice must contain the same information as in No. 1 above. In addition, these individuals must be notified of the special opportunity to elect COBRA coverage within 60 days after the date of the notice if they do not currently have a COBRA election in place. If a qualified beneficiary’s COBRA eligibility would have lapsed by April 1, 2021, this notice does not have to be provided.
- A notice of expiration of periods of premium assistance, which must be provided 15-45 days before the individual’s premium assistance expires. This notice must explain that the individual’s assistance will expire soon, the expiration date, and that the individual may be eligible for non-premium assistance coverage.
The Department of Labor has provided model notices, available here.
If you have any questions about the requirements of the law or how the premium subsidy works, please contact us.