The U.S. Department of Labor recently issued guidance on the COBRA Premium Subsidy which was included in the American Rescue Plan Act of 2021 (Act).
The Act includes a 100% COBRA premium subsidy for up to six months for eligible individuals from April 1, 2021 through September 30, 2021. This means that no COBRA premiums can be collected from Assistance Eligible Individuals (AEIs) during this time period.
Assistance Eligible Individuals (AEIs) are those who:
- Have been terminated involuntarily (with the exception of termination for gross misconduct), or experienced a reduction of hours making them no longer eligible for benefits, who have elected for COBRA continuation coverage.
- Lost coverage for the aforementioned reasons before April 1, 2021, and were on COBRA as of April 1, 2021.
- Lost coverage before April 1, 2021 and did not elect for COBRA coverage or their COBRA lapsed due to a failure to make premium payments.
The employer or plan sponsor is responsible for paying all COBRA premiums for AEIs that elect coverage for any period during April 1, 2021 through September 30, 2021. Therefore, all COBRA premiums that have been collected since April 1, 2021, must be refunded or credited against future payments. The cost to the employer or plan sponsor for these premiums is recoverable through payroll tax credits claimed on the quarterly federal payroll tax returns.
Individuals determined to be assistance eligible will stop being eligible on the earlier of the following:
- The date on which he/she becomes eligible for any other group health plan including coverage through a new employer, a spouse, a health flexible spending arrangement, a qualified small employer health reimbursement arrangement, or Medicare.
- The individual’s applicable maximum COBRA continuation period which is available or would have been available had the individual opted in or not been discontinued.
- September 30, 2021.
A federal COBRA period for involuntary termination is typically 18 months. Because of this, employers may have AEIs whose COBRA periods began as early as November 1, 2019. Federal COBRA applies to companies with 20 or more employees. For companies with less than 20 employees, many states have their own version of COBRA called mini-COBRA. The COBRA periods may vary by state (e.g. Ohio’s mini-COBRA period is 12 months). The COBRA subsidy rules apply to companies subject to Federal COBRA and may also apply to companies subject to mini-COBRA rules in some states.
Any AEIs must receive a required COBRA notice within 60 days of the individual becoming eligible for the COBRA premium subsidy under the American Rescue Plan. Therefore, any individuals who were eligible for such assistance as of April 1, 2021 must receive the notice by May 31, 2021. The election period for an AEI is 60 days after receipt of the COBRA notice. The Act also permits eligible individuals to elect a different level of coverage less than or equal to the coverage currently aligned with premiums paid by the individual. Restrictions apply.
Time is of the essence! If your business is subject to Federal COBRA rules, or in some cases the state mini-COBRA rules, and has terminated any employees over the past 18-months or so, you should make certain to comply with the COBRA notice rules on or before the May 31, 2021 deadline. Failure to comply may result in significant excise tax to the employer/plan sponsor.
Learn more by reviewing the U.S. Department of Labor’s Frequently Asked Questions. Also, please refer to IRS Notice 2021-31.
