Employers Must Provide COBRA Subsidy Under the American Rescue Plan Act

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cobra form

Beginning April 1, 2021, the recently passed American Rescue Plan Act (“ARPA” or the “Act”) will require covered employers to pay state or federal health insurance continuation expenses (referred to as “COBRA”) for eligible separated employees for up to six months. The subsidy is in effect until September 30, 2021.

Who is a Covered Employer?

The ARPA requires all employers who offer insurance continuation under COBRA or a state equivalent to separated employees to provide the subsidy for any medical, dental, or vision plan offered by the employer. Coverage under flexible spending accounts are not covered by the subsidy.

Who is Eligible?

Separated employees—and their covered family members—whose employment ended because of an involuntary termination of employment or reduction of hours are eligible for the subsidy. The employee and family members must be receiving COBRA benefits or eligible to receive COBRA during the period from April 1 through September 30, 2021.

The ARPA does not have specific requirements regarding the basis for termination of employment except that it must be involuntary and not the result of an employee’s resignation.

Even if a separated employee previously waived COBRA coverage, the ARPA offers a second election opportunity for eligible individuals who are still within the 18-month coverage period. Covered employers cannot require retroactive premiums for months in which the separated employee waived coverage prior to the effective date of the Act. However, the Act does not extend coverage eligibility beyond the 18-month limitation under COBRA.

What Coverage is Eligible?

Individuals should be allowed to elect the same or similar coverage that they had as employees. Employers can elect, but are not required, to allow separated employees to choose available coverage that is different than what was offered at the time the separated employee’s coverage first terminated. Such options must (i) include health insurance plans and not just excepted benefits such as dental and vision, (ii) be offered to similarly situated active employees, and (iii) cannot be more costly than the prior coverage.

What do Employers Need to Do?

Employers must send notice by May 31, 2021 about the subsidy to previously separated eligible employees, who will have the option to start or reinstate coverage within 60 days of receiving notice. Employers must update their notices for future employee separations that occur prior to the sunset of the subsidy on September 30, 2021. The Department of Labor will be issuing model notices by April 10, 2021.

Employers must also send out notice between 15 and 45 days prior to the date when subsidies expire. For covered individuals whose COBRA coverage ends May 31, 2021, the notice must be sent no later than May 16, 2021. The Department of Labor will be issuing a model notice of expiration by April 25, 2021.

Impacted employers should begin taking steps to plan for and implement the ARPA requirements immediately. If you need assistance with implementing the subsidy, please contact one of our employment attorneys today.