The American Rescue Plan Act of 2021 (ARPA) included a provision to help unemployed workers by authorizing a 100% subsidy of COBRA health insurance premiums through September 30, 2021. The ARPA was signed into law by President Biden on March 11, 2021.
Under the ARPA, employers would receive the subsidy through a payroll tax credit against their quarterly taxes. Employees who lost their jobs due to the pandemic and their covered relatives would be allowed to remain on their employer-sponsored health plans for a six-month period beginning April 1, 2021, through September 30, 2021. The subsidy is not available to employees who voluntarily quit their jobs.
Employers now have the task of identifying and contacting former employees who qualify for this subsidy as well as having to modify any pre-existing health care measures made for these workers.
Determination of Eligible Workers
The ARPA’s COBRA subsidy is available to eligible workers who lost their jobs or were placed on part-time work status since November 1, 2019. Workers who reduced their hours or left their jobs voluntarily, or who qualify for Medicare or another group health plan, are not eligible.
Employers must identify former and current employees who qualify for the COBRA subsidy to notify them of the subsidy. There may be a number of workers who did not elect COBRA coverage because of its cost, even though they may have qualified for it.
In addition, determining eligibility may prove difficult since some employers do not always keep records of which employees left voluntarily and which left involuntarily. While this does not matter for COBRA eligibility, it is necessary for determining subsidy eligibility.
Notification of Eligible Workers
Current and former employees who qualify for the COBRA subsidy must be notified within 60 days of April 1. The ARPA requires the Department of Labor to issue model notices within 30 days of the enactment date of the legislation – on or about April 10, 2021.
The ARPA requires the amendment of COBRA notice forms by employers to include a separate document with the following information:
- The forms necessary for establishing eligibility for COBRA premium assistance.
- The name, address and phone number necessary to contact the plan administrator and any other person maintaining relevant information in connection with premium assistance.
- A description of the extended election period provided by the legislation.
- A description of the option to enroll in different coverage, if adopted by the employer.
While employers may want to take immediate action, it is recommended that they wait until the DOL has issued model notification language to ensure the notification process is executed properly. Employers can be proactive in preparing for notification by having a process in place that helps eligible workers understand this legal change and provides a method for answering inevitable employee questions about the subsidy.
Securing the Tax Credits
In exchange for offering the subsidy, employers are allowed to claim a credit against their Medicare tax obligations. And, since the tax credit is refundable, employers can keep the difference if the credit is larger than their tax obligations.
Employers may need to make adjustments to any pandemic-related COBRA arrangements they may have made to ensure they receive the most advantageous tax credit possible. For example, employers that paid a portion of their laid-off workers’ COBRA premiums during the pandemic as part of a severance agreement may need to re-set the affected workers’ contributions for April-September 2021 in order to receive a full premium subsidy.