In the American Rescue Plan Act of 2021 (“ARPA”), Congress provided 6 months of free COBRA coverage for certain individuals who are eligible for COBRA continuation coverage due to a qualifying event that is a reduction in hours or an involuntary termination of employment. Employers need to take prompt action to comply with new notice and election requirements as outlined in recent guidance issued by the U.S. Department of Labor (“DOL”).

Who Is Eligible:

Assistance Eligible Individuals (“AEIs”) are COBRA qualified beneficiaries:

a. whose COBRA qualifying event was either a reduction in hours or an involuntary termination of employment;

b. who are not eligible for Medicare; and

c. who are not eligible for coverage under any other group health plan, including a new employer’s group health plan or a spouse’s employer’s group health plan. 

A former employee who voluntarily quits, resigns, or retires cannot be considered an AEI. As a result, neither they nor their covered family members qualify for ARPA subsidies. On the contrary, an employee who loses group health coverage because of a reduction in hours – whether voluntary or not – can be an AEI, and so can their covered family members. This includes an employee whose hours are reduced due to a change in the employer’s hours of operations, who changes from full-time to part-time status, who takes a temporary leave of absence, or who participates in a lawful labor strike, as long as there has not been a termination of employment when hours are reduced. 

How Does the Subsidy Work?

The DOL has published on its website a summary of the ARPA subsidies that includes a form that COBRA qualified beneficiaries should complete and submit to request that they be considered an AEI. AEIs will not be required to pay the COBRA premiums when ARPA subsidies are in effect. Instead, employers (or, in some cases, insurers) will obtain reimbursement for the subsidy through a credit against their Medicare FICA payroll taxes. If an AEI mistakenly pays premiums during the ARPA subsidy period, a refund must be issued within 60 days. 

When Is the ARPA Subsidy in Effect? 

Generally, the subsidies will apply for an AEI’s COBRA coverage during the period of April 1, 2021, through September 30, 2021. However, ARPA does not lengthen the period during which COBRA coverage is provided. For example, if someone’s 18 months of COBRA coverage is appropriately scheduled to end on July 31, 2021, the individual’s status as an AEI does not change the date the individual's COBRA coverage ends. Moreover, the ARPA subsidy does not apply for any months during which an AEI is eligible for Medicare or for an employer’s group health plan coverage (with a few exceptions). AEIs are required to provide notice to the plan if they become eligible for other group health plan coverage or for Medicare, and they face a monetary penalty if they fail to do so. 

Action Item: Group health plans must distribute a COBRA Notice that includes ARPA provisions to any COBRA qualified beneficiary who experiences any COBRA qualifying event (not simply a reduction in hours or involuntary termination of employment) on or after April 1, 2021, through September 30, 2021. 

What about People Who Could Have Been AEIs But Declined or Dropped COBRA Coverage?   

These individuals are given an additional opportunity to elect COBRA coverage. AEIs whose COBRA qualifying event was a reduction in hours or involuntary termination of employment prior to April 1, 2021, and who did not elect COBRA or who elected COBRA but are no longer enrolled in COBRA have a new 60-day election period to enroll in COBRA and take advantage of the subsidy. No later than May 31, 2021, such individuals must be given notice of their additional election period, which lasts 60 days after the notice is provided. Their COBRA coverage can be effective as early as April 1, 2021, or prospectively after they elect COBRA. Importantly, the additional election period does not provide them with any longer period of COBRA coverage. 

Action Item: No later than May 31, 2021, group health plans must distribute a notice of the additional election period to any AEI (or any individual who would be an AEI if COBRA coverage were in place) who had a qualifying event before April 1, 2021. 

What Happens When the ARPA Subsidy Ends? 

Group health plans are required to notify AEIs of the date on which the ARPA subsidy will end and to provide information about other coverage for which they may be eligible (although without the ARPA subsidy).

Action Item: Group health plans must notify an AEI 15 to 45 days before their subsidy will end. However, this is not required for individuals whose ARPA subsidy ends because they are enrolled in another group health plan or Medicare.

Note: The DOL has published model notices, which can be found on their website.

Click here to view the notices in Word or pdf format. 

Do the ARPA Rules Apply to Small Employers or Governmental Entities? 

ARPA subsidies are available for AEIs who were enrolled in plans sponsored by small employers that are required to comply with state mini-COBRA rules or state or local or governmental entities subject to the COBRA rules in the Public Health Service Act. In fact, the DOL has published an alternative model notice that may be used by such plans. However, ARPA does not change any of the program requirements that apply. 

If you sponsor group health coverage that is subject to federal COBRA or state mini-COBRA requirements, it is important that you reach out to your plan’s service providers (for instance, the insurer, third party administrator, and/or COBRA administrator) to ensure that your plan will timely comply with these new rules. COBRA failures can result in potentially significant exposure to excise taxes under Section 4980B of the federal tax code, and the DOL’s notice states that ARPA failures – including failure to comply with the new notice requirements – will trigger such exposure.