COBRA and the American Rescue Plan

The $1.9 trillion relief bill, known as the American Rescue Plan, has been signed into law by President Joe Biden. Highlights of the bill include extended unemployment benefits, direct checks to individuals and more.

While some of the bill was changed during its time with Congress, it’s largely similar to the initial version passed by the House. However, some key provisions, such as a higher minimum wage, were scrapped amid efforts to pass the bill swiftly.

An important item to employers, the bill subsidizes private health insurance premiums for unemployed workers through the Consolidated Omnibus Budget Reconciliation Act (COBRA). The provision allows individuals eligible for COBRA insurance coverage to maintain their employer-sponsored coverage after losing employment without having to pay any portion of the premiums through the end of September 2021.

Additionally, the bill invests nearly $35 billion in premium subsidy increases for those who buy coverage on the ACA Marketplace. The bill increases the subsidies provided to currently eligible individuals, and removes the 400% federal poverty level cap (equal to approximately $51,000 for an individual) on subsidy eligibility.

COBRA Premium Subsidy

Assistance eligible individuals will be eligible to receive a 100 percent subsidy for their COBRA continuation coverage premiums from April 1, 2021 through September 30, 2021. This means that the individual does not need to pay anything towards the COBRA premium. Employers will receive a credit for the subsidy via a payroll tax credit against their quarterly taxes.

The subsidy will end before September 30, 2021 for those (1) whose maximum COBRA coverage period ends earlier (using their original COBRA qualifying event date); or (2) who become eligible for another group health plan or Medicare. Certain penalties will apply if an individual fails to inform his or her employer of such other health plan coverage eligibility.

*Assistance Eligible Individuals

Employees (and their spouses and dependent children) who lose (or lost) group health plan coverage due to involuntary termination of employment or reduction of work hours and elect (or elected) COBRA coverage are eligible for the subsidy. Other COBRA qualifying events do not qualify for the subsidy.

*New Election Period Applies

Eligible Individuals who have not yet exhausted their original 18-month COBRA continuation coverage period and either (1) did not elect COBRA; or (2) elected COBRA, but dropped it, must be given a new 60-day special enrollment period to elect this coverage. These individuals may receive the subsidy on a prospective basis (i.e., they will not have to pay for COBRA retroactively for months prior to April 1, 2021).

*Revised COBRA Notices

Employers must update their COBRA notices, within 60 days of April 1, 2021, to include information on the availability of the subsidy and the new special 60-day enrollment period. The U.S. Department of Labor will be issuing model notices within 30 days of enactment of the legislation.

❗️Steps to Take Now ❗️

Employers should begin gathering information about individuals who:

(1) were involuntarily terminated (or whose hours were reduced) and were removed from your group health insurance as a result; and

(2) either elected, or were eligible to elect, COBRA coverage.

You’ll need to go back as far as October 1, 2019 for this list.

Having this information ready will facilitate the process of notifying those individuals of the new election opportunity.

We will provide you with additional updates as soon as they are available. In the meantime, please contact us with any questions.