COBRA Subsidy Under the American Rescue Plan

There is some good news for employees with a qualifying event who chose not to take COBRA or who are no longer enrolled in COBRA. Under the American Rescue Plan Act of 2021 (ARP), qualified beneficiaries covered from April 1, 2021 to September 30, 2021 get a second chance at coverage with a 100% subsidy.

Assistance Eligible Individuals—those whose employment was terminated or had a reduction in hours, through no fault of their own—will not have to pay their COBRA premium. Instead, it is ‘advanced’ by the employer, plan, or insurer, and then reimbursed by the government in the form of a tax credit. The subsidy applies to all COBRA plans including medical, dental, vision, etc., with the exception of FSA.

What do employers need to know?

Employers can choose whether or not to include the subsidy as a reportable cost for the calendar year for the period in which the employee had continuing coverage under the plan. If an employer chooses to report it, it should be reported under the regular COBRA rate applicable to the employee.

Before May 31, 2021, employers must notify Assistance Eligible Individuals during the six-month period that they may be entitled to COBRA premium assistance, and if permitted by the plan, the option to enroll in different coverage.

Individuals who opted out of COBRA, or who originally elected it and then dropped coverage, must also be notified that they have another opportunity to opt back in.

Additionally, employers are also responsible for notifying Assistance Eligible Individuals when the COBRA premium assistance period ends.

Notices to employees must include:

• Forms necessary for establishing eligibility for the premium assistance.
• Contact information for the plan administrator or the person maintaining the premium assistance information.
• A description of the additional election period (if applicable to the individual).
• A description of the requirement that the Assistance Eligible Individual notify the plan when he/she becomes eligible for coverage under another group health plan or Medicare, and that there is a penalty for failing to do so.
• A description of the right to receive the premium assistance and the conditions for entitlement.
• A description of the option to enroll in a different coverage option available under the plan, if offered by the employer.

Subsidies will end before September 30, 2021 if:

• The individual becomes eligible for Medicare or another group health plan.
• The maximum COBRA coverage otherwise ends.

What do Assistance Eligible Individuals need to know?

Once they receive the notice from the employer, they must elect COBRA continuation coverage within 60 days of receiving the notice or forfeit their right.

Assistance Eligible Individuals who receive the COBRA premium assistance are also responsible for notifying the employer if they become eligible for coverage under another group health plan or Medicare. Failure to do so can result in a tax penalty to the individual. 

Timeline summary

April 1, 2021 – premium subsidy period begins.
May 31, 2021 – election notice due to Assistance Eligible Individuals.
August 1, 2021 to September 15, 2021: notice of expiration of subsidy due to Assistance Eligible Individuals.
September 30, 2021 – premium subsidy period ends.

The COBRA Assistance program is just one of the many programs designed to make insurance coverage more affordable under the ARPA. This excerpt provides a brief summary of the COBRA premium assistance program, but more information is available at COBRA Premium Subsidy | U.S. Department of Labor (dol.gov)