The American Rescue Plan Act (ARPA), enacted in March 2021, authorizes temporary COBRA premium assistance to certain individuals and their dependents who have lost employer-sponsored health coverage due to involuntary termination of employment (other than for gross misconduct) or reduction of hours. The assistance reduces the amount of COBRA premiums to zero for the period April 1, 2021 through September 30, 2021 or, if earlier, the date the worker’s COBRA coverage period expires. See LR’s prior What You Need to Know Now posting discussing the ARPA’s temporary COBRA assistance here.
Under the Consolidated Omnibus Budget Reconciliation Act, or “COBRA,” workers who lose their employer-sponsored health insurance may purchase continued coverage through their former employer. However, COBRA coverage is expensive, often deterring people from purchasing it. The ARPA’s COBRA assistance program provides that people who lost their job-related health insurance because of termination from employment (other than for gross misconduct) or reduction in work hours may apply to receive free COBRA coverage from April 1, 2021 through September 30, 2021. Free coverage is not available if a worker or dependent lost coverage for another reason, such as death, divorce or becoming eligible for Medicare.
On April 7, 2021, the U.S. Department of Labor (DOL) released “Frequently Asked Questions” regarding the ARPA’s COBRA assistance program, clarifying how the program works and who is eligible. The guidance is summarized below, but you can find the complete FAQ document here.
How does the program work?
Under the subsidy program, the employee is not required to pay the cost of the premium and will not receive any sort of reimbursement payment. Instead, the employer, insurance company, or multiemployer plan covers the cost of the premium, for which it will be reimbursed through a new federal tax credit. Employees and their dependents are not required to pay any fees to receive the subsidy but must apply for it
Who is eligible?
You are eligible for the ARPA premium assistance if you qualify for COBRA coverage because of a “qualifying event” occurring since November 1, 2019. Qualifying events are:
- A reduction in hours, including reduced hours due to change in a business’s hours of operations, a change from full-time to part-time status, taking of a temporary leave of absence, or an individual’s participation in a lawful labor strike; or
- An involuntary termination of employment (except for gross misconduct).
You may be eligible for this free coverage if: you are currently on COBRA; you were previously offered COBRA continuation coverage, but declined to take it; or you had COBRA continuation coverage that you later discontinued, provided the 18-month period during which you would have been eligible for COBRA coverage has not yet lapsed. The subsidy period does not extend an individual’s COBRA coverage period.
If your COBRA coverage extends past September 30, 2021, you will be required to pay the applicable COBRA premium.
You are not eligible for the premium assistance if you are eligible for another group health plan, such as through another employer’s or spouse’s plan, or if you are eligible for Medicare. However, if you have Medicaid or individual coverage, such as coverage through the Health Insurance Marketplace, you may be eligible for ARPA premium assistance. The DOL guidance notes that if you elect COBRA coverage with premium assistance, you will no longer be eligible for health insurance premium tax credits during that period. As with all tax matters, you should check with your accountant or tax preparer for guidance.
You are required to advise your health plan or insurer if you become eligible for other coverage or Medicare. Failure to provide this notice may result in an IRS penalty.
How long will premium assistance last?
Premium assistance can last from April 1, 2021 through September 30, 2021, but will end earlier if you become eligible for another group health plan or Medicare or if your maximum COBRA coverage period ends. If you are already enrolled in COBRA coverage, or wish to enroll in coverage starting at a date prior to April 1, 2021, you will not be reimbursed for any earlier premium payments made—you can only receive free coverage for the period between April 1, 2021 through September 30, 2021.
Notice Requirement for Employers
Group health plans must provide covered individuals with notices explaining the COBRA premium subsidy and how to apply for it no later than May 31, 2021. Plans are required to notify individuals about the end of their subsidy 15-45 days before the expiration date.
You may want to contact your health plan or insurer if have any questions about the COBRA premium subsidy and your eligibility for it.