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Update: US Department of Labor Issues FAQs and Model Notices Regarding Free COBRA Coverage Under the American Rescue Plan Act of 2021

April 7, 2021

The U.S. Department of Labor (DOL) has issued Frequently Asked Questions (FAQs) regarding the subsidies available to eligible individuals to obtain up to six months of free COBRA coverage under the American Rescue Plan Act of 2021 (“ARPA”).  The DOL website also includes Model Notices that must be sent to those who are eligible for the subsidy by May 31, 2021. The DOL has also published a “Summary of COBRA Premium Assistance Provisions” which includes a “Request for Treatment as an Assistance Eligible Individual Form” that employees may send to their employers.

Individuals Who Lost Health Insurance Due to An Employee’s Involuntary Termination of Employment or Reduction of Hours are Eligible for up to Six Months of Free COBRA Coverage Under the American Rescue Plan Act of 2021

March 31, 2021

The American Rescue Plan Act of 2021 (“ARPA”) provides individuals who have lost their employer-provided health insurance because of an involuntary termination of employment or reduction in hours with the ability to continue their health insurance coverage under the federal Consolidated Omnibus Budget Reconciliation Act (COBRA) without cost for up to six months, from April 1, 2021 through September 30, 2021.

Generally, under COBRA, an employee who loses employer-provided health insurance and their covered dependents (“qualified beneficiaries”) due to a termination of employment or reduction in hours can elect to continue the same coverage at their own cost for up to 18 months. Under the ARPA COBRA subsidy, eligible individuals will not have to pay any premium for up to six of the 18 months, but only for coverage during the period from April 1, 2021 through September 30, 2021.

Who Is Eligible for the Subsidy?

An “assistance eligible individual” under ARPA is any qualified beneficiary who, due to a covered employee’s involuntary termination of employment or a reduction in hours, becomes or is already eligible for COBRA continuation coverage during the period from April 1, 2021 through September 30, 2021. Individuals who have lost insurance coverage because of an employee’s voluntary termination of employment or other reasons are not eligible for the subsidy.

Importantly, this means that anyone who became eligible for COBRA because of an involuntary termination of employment or reduction in hours that occurred in the 18 month period before April 1, 2021 (i.e., as far back as November 1, 2019) will qualify for the COBRA subsidy (for coverage on a prospective basis). This includes those who did not previously elect COBRA coverage and those who elected COBRA coverage but discontinued it. ARPA gives these qualified beneficiaries a second chance to elect COBRA coverage, but they must elect such coverage no earlier than April 1, 2021 and no later than 60 days after they receive a Subsidy Eligibility Notice, described below.

The COBRA subsidy is only available during the six-month period from April 1, 2021 through September 30, 2021. Notably, ARPA does not extend COBRA coverage beyond the 18-month COBRA period.

For example, an individual who was laid off on December 31, 2019, and lost insurance coverage on that date but did not elect COBRA coverage will have a second chance to elect COBRA coverage, with the ARPA 100 percent subsidy, starting on April 1, 2021. However, that individual’s COBRA coverage will still end on June 30, 2021, at the expiration of the 18-month COBRA period.

When Does the COBRA Subsidy End?

The COBRA subsidy will expire on the earliest of any of the following:

A qualified beneficiary must notify the plan providing COBRA coverage if the beneficiary loses eligibility for the COBRA subsidy due to becoming eligible for another group health plan or Medicare. Failure to do so may result in penalties.

Option to Enroll in an Alternative Plan

Subject to certain conditions, ARPA also allows, but does not require, a plan sponsor to provide eligible individuals with the option to switch to an alternative health insurance plan offered by the sponsor.

What Notices Must Be Provided?

Plan administrators must provide (i) a Subsidy Eligibility Notice by May 31, 2021 and (ii) a Notice of Subsidy Expiration. The United States Department of Labor (DOL) has provided model notices on its website, available here.

The Subsidy Eligibility Notice, which plan administrators must include as part of all COBRA election notices provided between April 1, 2021 and September 30, 2021, must include the following additional information:

This additional information may either be included by amending existing COBRA election notices or by including a separate document containing this information.

The Subsidy Election Notice must be provided no later than May 31, 2021. The DOL has provided three model notices on its website:

Plan administrators must also provide qualified beneficiaries with a written Notice of Subsidy Expiration that explains when the COBRA subsidy will end. This notice must be provided between 45 and 15 days before the expiration date of an individual’s COBRA subsidy and must explain that the individual may still be eligible to continue to pay for unsubsidized COBRA coverage or under another group health plan. This notice is not required for those whose subsidy is expiring because they became eligible for other group health coverage or Medicare. The DOL has provided a model “Notice of Expiration of Premium Assistance” on its website.

Who Will Receive the COBRA Subsidy Tax Credit?

Individuals eligible for the COBRA subsidy will not be required to pay the premium. The entity that incurs the cost of a qualified beneficiary’s COBRA coverage will be reimbursed through a tax credit or refund, applied against quarterly Medicare payroll taxes. The entity who is entitled to the tax credit or refund depends on the type of health plan at issue, as follows:

If an assistance eligible individual pays any COBRA premiums for coverage from April 1, 2021 to September 30, 2021, the individual must receive a refund no later than 60 days after the date of the payment. A tax credit may still be claimed for such refunds.

Next Steps

Employers should take the following actions in order to comply with ARPA:

We will continue to monitor and report on any new developments regarding the ARPA COBRA subsidies.