The recently enacted American Rescue Plan Act of 2021 (ARP) includes a 100% COBRA subsidy for certain individuals for up to six months from April 1, 2021, through September 30, 2021.
- Eligible individuals include individuals who meet the following requirements:
- Is eligible for COBRA continuation coverage due to an involuntary termination of employment (other than for gross misconduct) or a reduction of hours; and
- Elects COBRA continuation coverage.
- Eligible individuals include not only individuals who become eligible for COBRA between April 1, 2021 and September 30, 2021, but also the following individuals:
- Individuals who lost coverage for the above reasons prior to April 1, 2021 who are on COBRA as of April 1, 2021; and
- Individuals who lost coverage for the above reasons prior to April 1, 2021, and who either did not elect COBRA or whose COBRA lapsed from failure to pay premiums prior to April 1, 2021.
- A terminated individual who initially did not elect COBRA, but is eligible for the subsidy, may elect COBRA effective April 1, 2021 (assuming they would otherwise be entitled to elect COBRA).
- From April 1, 2021 through September 30, 2021, no COBRA premiums may be collected from eligible individuals and any premiums that were collected will need to be refunded or credited against future payments.
- Employers will be responsible for paying the COBRA premiums for the eligible individuals and such premiums will be recoverable by the employer through payroll tax credits when filing quarterly FICA tax returns.
- The Department of Labor has released three model notices. Employers must provide the notices to eligible individuals by established deadlines. For eligible individuals not currently receiving COBRA coverage and whose maximum COBRA coverage period has not expired, a notice of the subsidy must be provided by May 31, 2021.
Employers should act swiftly to determine their full list of eligible employees and ensure the timely distribution of the notices.
As well, employers should consider how COBRA premium assistance will impact severance plans, policies, or agreements. Any such plans, policies or agreements should be reviewed to determine whether any temporary modifications or supplements are required.