No Foolin’ – 8 Things to Know About the New COBRA Subsidy

Curious about how the ARPA COBRA Subsidies work? Check out this article from Benefit Resource!

The American Rescue Plan Act of 2021 (ARPA) was passed through the House and Senate this week. The bill was signed into law on March 11, 2021. While the specifics are still developing, here are 8 things to know about the COBRA subsidy that is included in the bill.

1. It’s a 100% subsidy.

While there were several iterations of the bill and subsidies, the final version includes a 100% subsidy. This will allow eligible individuals to obtain COBRA continuation coverage for their health plan without paying COBRA premiums.

2. It’s specific.

The COBRA subsidy is only available for premiums due from April 1, 2021 through September 30, 2021, referred to as the subsidy period. In order to be eligible, individuals must be in their 18-month Federal COBRA Coverage period.

3. Coverage is not automatic.

While newly eligible individuals will not need to pay premiums, they will still need to elect COBRA coverage in order to take advantage of the subsidy.

4. Employers are responsible for paying premiums, but receive a tax credit.

Employers sponsoring a group health plan will be responsible for paying health insurance carriers for the premiums. They will be reimbursed for 100% of the COBRA premiums through tax credits against certain payroll taxes.

5. New and previous qualified beneficiaries may be eligible.

The COBRA subsidy is available for individuals who are or become qualified beneficiaries as a result of involuntary termination of employment or a reduction in hours. This may include individuals who:

• become eligible for COBRA during the subsidy period
• previously elected COBRA coverage and have paid premiums for prior months
• have not elected COBRA coverage but are still eligible to elect COBRA

6. Eligible individuals will need to be notified.

Eligible individuals will need to receive an updated notification regarding their rights to COBRA and the COBRA subsidy. The Department of Labor and Department of Health and Human Services is expected to provide new model notices within 30-days of enactment of the law.

7. Subsidies apply to Group Health Plans, except FSAs.

The 100% COBRA subsidy applies to the underlying medical coverage, dental and vision plans. Participants may still be responsible for premiums if they elect coverage for an FSA (or other benefits being offered post-employment).

8. Individuals could elect to change coverage.

If an employer permits individuals to change coverage, the premium subsidy cannot exceed the cost of the coverage option the individual was in at the time of the qualifying event.

For example: Assume at the time of termination an employee was enrolled in Plan A and the premium was $500 per month. They have an opportunity to enroll in Plan B, but it costs $700 per month. The employee’s subsidy cannot exceed the original premium of $500 per month.