Signed into law on March 11, 2021, the American Rescue Plan Act of 2021 (ARPA) provides significant economic relief to individuals and businesses. Among the provisions, ARPA provides a 100% COBRA subsidy for up to six months to eligible individuals who lost health coverage due to involuntary termination or reduction of hours during the pandemic.
What is COBRA?
The Consolidated Omnibus Budget Reconciliation Act (COBRA) gives employees and their dependents the option to continue group health benefits in the event of job loss or reduction of hours. Under COBRA, employers may require the employee to pay up to 102% of the cost of the coverage, which is often a significant expense for many individuals and families. According to the Kaiser Family Foundation 2020 Employer Health Benefits Survey, the average premiums for family coverage under an employer health plan is $21,342 per year. ARPA alleviates qualified employees of that cost for six months.
What Employers Need to Know
- While employers will pay the COBRA premium for qualified employees and their dependents, the federal government will reimburse employers for those costs.
- Employers will obtain reimbursement through a payroll tax credit via the quarterly payroll tax filing process. If the credit owed to the employer exceeds taxes due, the remainder will be refunded. There is an option to receive an advance on the credit. More information on that option will come from the U.S. Department of the Treasury.
- Employers will need to identify employees who lost individual or family health plan coverage due to involuntary employment termination or reduction in hours and are still within the 18-month COBRA coverage period. This includes employees who let their COBRA lapse or who did not elect COBRA initially.
- Within 60 days, employers will send a notice to each of these employees. The Department of Labor will issue a model notice for employers in the coming days.
- Eligible employees will have 60 days after receipt of the notice to elect COBRA.
- If the employee becomes covered under another group health plan or Medicare, or comes to the end of their 18-month COBRA coverage, the free COBRA coverage will end.
Additional guidance is expected from the Department of Labor and Internal Revenue Service. For specific advice on the COBRA subsidy and your business, contact a benefits employment attorney.