Ten Things Employers Need to Know About the COBRA Premium Assistance Subsidy Under the American Rescue Plan Act of 2021

President Biden signed H.R. 1319, the American Rescue Plan Act of 2021 (ARP) on March 11, 2021. Among other things, the law subsidizes the full COBRA premium for “Assistance Eligible Individuals” for periods of coverage from April 1, 2021 through September 30, 2021.  The following provides some general information in response to questions we hear employers asking.  The DOL has also published FAQs on its website that employers may find helpful as they navigate this part of the new law.

    1. Which private-sector, health plans are covered by the premium assistance subsidy? Basically, all group health plans sponsored by private sector employers are covered.  Specifically, all group health plans sponsored by private-sector employers subject to COBRA rules under ERISA (generally employers that employ at least 20 employees) are covered.  Premium assistance is also available to assistance eligible individuals who participate in group health plans sponsored by small, private-sector employers that are subject to state mini-COBRA laws. 
    1. Who is eligible for premium assistance? The subsidy applies to “assistance eligible individuals” (AEIs).  AEIs must have a COBRA-qualifying event, and be eligible for, and elect COBRA during the period of April 1, 2021 through September 30, 2021, due to:
      • An involuntary termination of employment, or
      • A reduction in hours (not required to be voluntary)

Individuals who (i) retire or resign, (ii) are eligible for Medicare, or (ii) are eligible for coverage under any other group health plan (such as a plan sponsored by a new employer or a spouse’s employer, other than coverage consisting only of excepted benefits defined generally as dental and vision benefits), are not eligible for premium assistance under the ARP.

AEIs include employees who experience an involuntary termination or a reduction in hours during the subsidy period; individuals who are currently enrolled in COBRA coverage as of April 1, 2021; and persons who experienced a COBRA-qualifying event before April 1, 2021 and would be AEIs during the subsidy period if they had elected or maintained COBRA coverage. AEIs also include dependents.

    1. What is a reduction in hours that would allow an individual to be eligible for premium assistance? The DOL has opined in recently released guidance that a qualifying “reduction in hours” may include a reduction due to (1) change in a business’s hours or operations, (2) transition from full-time to part-time, (3) taking a temporary leave of absence, or (4) participating in a lawful labor strike.
    1. What happens if an AEI becomes eligible for other group health plan coverage during the subsidy period? AEIs who become eligible for other group health plan coverage during the subsidy period must notify the plan or plan administrator in writing.  Failure to do so may subject the individual to a penalty of $250 (or if the failure is fraudulent, the greater of $250 or 110% of the premium assistance provided after termination of eligibility).  AEIs will not be subject to the penalty if the failure to notify the plan is due to reasonable cause and not due to willful neglect.
    1. Does an employer have a responsibility to notify employees that they are eligible for premium assistance?
      • Group 1: AEIs who become eligible to elect COBRA (e.g., have a COBRA-qualifying event) during the subsidy period (April 1, 2021 through September 30, 2021).  These individuals must be provided a general notice that describes the availability of the premium assistance.  This notice may be satisfied by amending existing notices or by including a separate attachment.  The DOL has published a model General Notice here.
      • Group 2: AEIs who experienced a COBRA-qualifying event prior to April 1, 2021, and individuals who would be AEIs if the COBRA election period were still in effect (generally those with a qualifying event on or after October 1, 2019). The employer or plan administrator must provide these individuals with a supplemental notice stating that their COBRA election period will be extended and notifying them of the existence of the premium subsidy which they can elect.  This supplemental notice must be provided by May 31, 2021 and individuals have 60 days after the notice is provided to elect COBRA.  Individuals in this group are not required to elect retroactive to the date of the qualifying event or any other date prior to April 1, 2021, nor are they required to pay outstanding premiums for prior periods of coverage in order to take advantage of premium assisted coverage. The DOL has posted a Notice of Extended COBRA Election here. Note that the previously announced COBRA deadline relief related to the COVID-19 National Emergency does not apply to the notices or election periods under the ARP.

Example:  An employee was involuntarily terminated on June 15, 2020 and became eligible for COBRA coverage on July 1, 2020. The 18-month COBRA coverage period would end on December 31, 2021. This means this employee is eligible for the COBRA premium subsidy from April 1 through August 31, 2021, provided the employee makes a timely COBRA election during the original or extended election period.

    1. How long does the COBRA premium subsidy last if an employee experienced a qualifying event prior to April 1, 2021? The second election period does not extend the period of COBRA coverage beyond the original maximum period (generally 18 months from the COBRA-qualifying event).  COBRA coverage with premium assistance elected in this second election period may begin as early as April 1, 2021, but is only available for coverage through September 30, 2021.  
    1. How is the premium assistance provide to AEIs? AEIs will not receive a payment for premium assistance.  Instead, AEIs will not pay any COBRA premium for the period of coverage from April 1, 2021 through September 30, 2021.  The COBRA premium will be paid by the employer, the plan administrator, or the insurance company, as applicable.  Premiums paid by employers will be reimbursed through an advanceable, refundable tax credit against Medicare payroll taxes (1.45%).  The DOL will provide forms and instructions for employers to apply for the credit. 
    1. Are employers required to provide a notice that the premium assistance is about to end? Plans and issuers must provide individuals with a notice of expiration of periods of premium assistance explaining that the premium assistance will expire soon, the date of expiration, and that the individual may be eligible for coverage without any premium assistance through COBRA continuation coverage or coverage under a group health plan.  Coverage may also be available through Medicaid or the Health Insurance Marketplace.  This notice must be provided 15-45 days before the individual’s premium assistance expires. 
    1. What is the penalty if employers do not provide the premium subsidy? Employers who do not comply with the ARP premium assistance subsidy requirements may be investigated by the DOL and may be subject to an excise tax under the Internal Revenue Code.  The excise tax could be as much as $100 per qualified beneficiary (but not more than $200 per family) for each day that the taxpayer fails to provide the required notice.
    1. What should employers do if they receive a Request for Treatment as an Assistance Eligible Individual? A Request for Treatment as an Assistance Eligible Individual may be submitted to an employer (or plan administrator) by an individual if they believe they are an AEI but have not received the required notice.  Employers receiving such a form should immediately make a determination whether the individual is an AEI, and discuss a future credit or reimbursement if the individual is an AEI and has already paid for COBRA coverage during some or all of the subsidy period.