(March 29, 2021) - Under the American Rescue Plan Act of 2021 (ARPA), assistance eligible individuals (AEIs) are entitled to have their COBRA premium payments fully subsidized for the period between April 1, 2021 and September 30, 2021 (the "subsidy period"). The subsidy applies to group medical, dental, and vision benefit plans but not healthcare flexible spending arrangements (health FSAs). Employers will be fully reimbursed for all COBRA premiums they front under ARPA through a tax credit on their quarterly payroll tax filings.
AEIs consist of employees involuntarily terminated for reasons other than gross misconduct during the subsidy period, as well as employees previously terminated involuntarily for reasons other than gross misconduct who initially elected and will continue receiving COBRA coverage during the subsidy period.
Not all dependents of the AEIs will be eligible for the subsidy, however. Specifically, the subsidy applies only if the dependent is a "qualified beneficiary" as defined by COBRA. Domestic partners are not included in this definition. Notably, to receive the subsidy, even COBRA-qualified beneficiaries must be covered by the plan on the day before the qualifying event. This means that dependents who elected COBRA coverage through HIPAA's special enrollment rules after their spouse or parent was involuntarily terminated are not eligible for the ARPA subsidy.
Not all AEIs will be able to receive a full six-month COBRA subsidy. The maximum period an AEI is eligible for the ARPA subsidy is determined as of the date of the COBRA-qualifying event. Additionally, the ARPA subsidy will end sooner if the AEI becomes eligible for coverage under another group health plan or Medicare.
ARPA further creates a special enrollment period for those involuntarily terminated employees whose maximum COBRA coverage period would have ended on or after November 1, 2019 had they initially elected COBRA or otherwise not let their COBRA coverage lapse. The special enrollment period begins on April 1, 2021 and ends 60 days after COBRA notice is delivered to the AEI. Until further guidance is provided, it is unclear what would happen if AEIs eligible to specially enroll for COBRA during the subsidy period fail to receive notice of their rights under ARPA before their respective maximum period for COBRA coverage ends.
What does this means for employers? Two things:
- Updated or supplemental COBRA notices must be given to those individuals eligible for the subsidy; and
- Employers may not rely on the COBRA subsidy to meet their existing obligations under a severance agreement or other arrangement with employees. Therefore, if, prior to the subsidy period, employers agreed to pay for a certain period of COBRA coverage, they would have to subsidize up to six additional months under ARPA.
Neither ARPA nor COBRA defines "gross misconduct." Until further guidance is issued, employers, for purposes of the ARPA subsidy, should not classify an employee's involuntary termination as "gross misconduct" unless the employee intentionally engaged in deliberate misconduct or acted recklessly with knowledge that doing so would cause others harm.
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