Section 9501 of the American Rescue Plan Act, 2021 (“ARPA”) provides for a complete COBRA premium subsidy for all Assistance Eligible Individuals beginning on April 1, 2021, and ending on September 30, 2021. This article discusses who qualifies as an Assistance Eligible Individual, the impact of the relief on such individuals, the impact of the relief on the COBRA maximum coverage period, the additional requirements imposed on employers in connection with the relief, and how employers may receive reimbursements for the subsidy from the federal government.

Who is an “Assistance Eligible Individual”?

An individual is an Assistance Eligible Individual (“AEI”) if he or she:

  1. Is eligible for COBRA coverage due to an involuntary termination of employment (other than a termination for gross misconduct) or a reduction in hours; and
  2. Has elected to enroll in COBRA coverage.

Therefore, those individuals who are currently enrolled in COBRA, and whose qualifying event met the above requirements, will be treated as AEIs for purpose of the relief. However, there are two classes of individuals that have the potential to become AEIs (“Potential AEIs”): Normal Election AEIs and Special Election AEIs.

Normal Election AEIs are those individuals:

  • whose qualifying event was (a) an involuntary termination of employment (other than a termination for gross misconduct) or (b) a reduction in hours;
  • who are not currently enrolled in COBRA; and
  • who are still within their COBRA election period as of April 1, 2021 (including by reason of the one-year tolling period under EBSA Disaster Relief Notice 2021-01).

Special Election AEIs are those individuals:

  • whose qualifying event was (a) an involuntary termination of employment (other than a termination for gross misconduct) or (b) a reduction in hours;
  • who are not currently enrolled in COBRA (either because they did not elect COBRA or because they subsequently discontinued their coverage);
  • who are not within their COBRA election period as of April 1, 2021 (including by reason of the one-year tolling period under EBSA Disaster Relief Notice 2021-01); and
  • whose COBRA maximum coverage period (if COBRA had been elected) would end after April 1, 2021.

As described below, Potential AEIs must be provided a new COBRA election notice, and if they elect COBRA pursuant to such notice, they will become AEIs entitled to the COBRA subsidy. However, see below for special rules relating to COBRA coverage for Special Election AEIs.

What Relief Is Provided to AEIs?

Beginning on April 1, 2021 through September 30, 2021, health plans may not charge AEIs premiums for COBRA coverage. (Employers will be reimbursed for the subsidy from the federal government, as discussed below.) However, this COBRA coverage, and related subsidy may terminate early if the AEI obtains coverage under another group health plan or becomes entitled to Medicare.

Do employers need to notify AEIs of the subsidy?

Yes. Health plans must notify any Potential AEIs of their right to elect fully subsidized COBRA coverage by May 30, 2021. The notices must clearly state and include the following:

  • the forms necessary for establishing eligibility for premium assistance under this subsection;
  • the name, address, and telephone number of the plan administrator and any other person responsible for administering the COBRA coverage;
  • a description of the subsidy election period (see below);
  • a description of the obligation of the individual to notify the health plan if he or she subsequently becomes covered under another group health plan or becomes eligible for Medicare, including the penalties for failure to carry out that obligation (see below);
  • a description of the individual’s right to a subsidized COBRA premium, the term of such subsidy, and any other conditions on entitlement to the subsidy; and
  • if applicable, a description of the option to enroll in different coverage if the employer elects to allow the individual to enroll in a different coverage option (see below).

Potential AEIs have 60 days from the date of the new COBRA election notice to elect to enroll in the subsidized COBRA coverage (the “Subsidy Election Period”). Department of Labor, in consultation with Department of Treasury and Department of Health and Human Services, is directed to issue model subsidized COBRA election notices within 30 days of the enactment of ARPA.

For Special Election AEIs who elect COBRA during the Subsidy Election Period, is the coverage retroactive to their qualifying event?

No. Typically, when a qualified beneficiary elects COBRA coverage, the election is retroactive to the date of the qualifying event. This means that the qualified beneficiary is also responsible for any premiums associated with such retroactive coverage.

However, ARPA allows Special Election AEIs to elect COBRA coverage beginning, not on the date of their qualifying event, but on April 1, 2021. This means that employers are not required to offer Special Election AEIs the opportunity to elect coverage earlier than April 1, 2021. This COBRA coverage lasts until the end of the COBRA maximum coverage period measured from the date of the qualifying event, unless terminated earlier due to the individual obtaining coverage under another group health plan or becoming eligible for Medicare.

How will employers know if the AEI enrolls in other group health coverage or becomes eligible for Medicare?

All AEIs are required to notify their health plans if they subsequently receive coverage from another group health plan or become eligible for Medicare. Failure to do so will result in a $250 fine, or if the failure was intentional, the greater of $250 or 110% of the COBRA premium.

Will the maximum coverage period under COBRA be extended?

No. If an AEI’s maximum coverage period would otherwise end before September 30, 2021, the relief under ARPA will not extend the AEI’s maximum coverage period.

Similarly, if the AEI informs the health plan that he or she has coverage under another group health plan or becomes eligible for Medicare, the health plan may still terminate the AEI’s COBRA coverage before the end of the maximum coverage period.

Is there any relief for employers who must bear the cost of the COBRA subsidy?

Yes. Employers will be reimbursed for this subsidy through a payroll tax credit. If the cost of the COBRA subsidy exceeds the employer’s payroll taxes, then the excess will be treated as a refund of an overpayment of payroll taxes.

Do employers have to notify AEIs when the subsidized period ends (i.e., September 30, 2021)?

Yes. In addition to sending out new COBRA election notices to Potential AEIs, health plans must provide prior written notice to all AEIs before the expiration of the subsidy. The notice must be provided between 45 and 15 days before the actual subsidy expiration date, unless the subsidy is expiring because the AEI obtained coverage under another group health plan or became eligible for Medicare.

Department of Labor, in consultation with Department of Treasury and Department of Health and Human Services, is directed to issue model subsidy expiration notices within 45 days of the enactment of ARPA.

May employers allow AEIs to enroll in a different health coverage option?

Yes, employers may (but are not required to) allow AEIs to enroll in a different health coverage option within 90 days of receiving the new COBRA election notice, provided that:

  • the premium for the other coverage does not exceed the premium for coverage in which the individual was enrolled at the time of the qualifying event;
  • the other coverage option is offered to similarly-situated, active employees; and
  • the other coverage is traditional comprehensive health coverage (e., not an excepted benefit, flexible spending arrangement, or qualified small employer HRA).
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Photo of Kendra L. Roberson Kendra L. Roberson

Kendra Roberson has experience advising clients on a broad spectrum of employee benefits matters including tax-qualified retirement plans, employee stock ownership plans, executive compensation arrangements, stock option and other equity-based compensation plans, cafeteria plans, VEBAs, self-insured medical plans, and other health and welfare…

Kendra Roberson has experience advising clients on a broad spectrum of employee benefits matters including tax-qualified retirement plans, employee stock ownership plans, executive compensation arrangements, stock option and other equity-based compensation plans, cafeteria plans, VEBAs, self-insured medical plans, and other health and welfare plans.  Her experience includes plan design and drafting, regulatory compliance, ERISA litigation, and handling employee benefits matters and plans in corporate transactions.  In addition, Ms. Roberson has extensive experience advising employers and state governments on compliance with the Patient Protection and Affordable Care Act (“PPACA”).

Photo of Molly Ramsden Molly Ramsden

Molly Ramsden helps employers of all sizes and industries maneuver the regulatory landscape of ERISA, the Internal Revenue Code, and various federal, state, and municipal employment laws. She counsels companies and individuals on all aspects of employee benefits, compensation, and employment issues, including…

Molly Ramsden helps employers of all sizes and industries maneuver the regulatory landscape of ERISA, the Internal Revenue Code, and various federal, state, and municipal employment laws. She counsels companies and individuals on all aspects of employee benefits, compensation, and employment issues, including tax-qualified retirement plans, health and welfare plans, executive employment and consulting agreements, and mergers and acquisitions.