The American Rescue Plan: COBRA Subsidies

In continuation with our discussion about the American Rescue Plan, one of the most talked about topics is the COBRA subsidies included in the plan.

The ARP will subsidize the entire cost of premiums for COBRA continuation coverage for anyone that was laid off or had reduced hours.  This was previously passed to cover 85% of the cost but was later increased to 100%.  This subsidy will begin on April 1st 2021 and continue for 6 months until September 30th 2021.  Any distribution from the subsidy will not count towards a person’s gross income and will be treated as an advancement on refundable payroll tax credit.

This COBRA subsidy is only available to those people that were involuntarily terminated or had their hours reduced.  The individuals affected will have an extended period to enroll in COBRA.  Those that have yet to participate in COBRA continuation coverage or who previously participated and discontinued their coverage can still opt into subsidized COBRA continuation coverage from April 1st, until 60 days after the group health plan notifies the individual of the extended election period.  All coverage will be retroactive back to April 1st.

Outside of a few exceptions, people who are currently enrolled in COBRA continuation coverage have up to 90 days to enroll in a different plan with the employer, if they choose to do so and the employer group allows it.  If this occurs, the COBRA subsidy will apply to the coverage change.

COBRA subsidies are NOT available to those individuals who are eligible to enroll in another group health plan, a Qualified Small Employer Health Reimbursement Account, Medicare or a Flexible Spending Arrangement.  An individual who fails to notify their health plan that they are no longer eligible for the COBRA subsidy may face penalties.

The access to the COBRA subsidy does not change or extend the availability of COBRA continuation coverage, itself.  This ultimately means that a person can apply the COBRA subsidy through September 30th 2021 but only if they would have been eligible for coverage.  In other words, if COBRA continuation was to terminate in August of 2021, the ARP does not require it be extended for that individual, past the original termination date.

For employers and group health plans, this means that several new notices will be required for those that become eligible for COBRA continuation coverage.  These notices will address the access of the new subsidies, options to enroll in different coverage if available, extended enrollment periods and premium assistance expiration.  Federal officials have the task to develop model notices for these purposes within 45 days of enactment.  The Department of Labor and other agencies involved were given $10 million dollars in implementation funding.  Employers effected by these changes will also be required to pay all COBRA premiums and will then be reimbursed through refundable payroll tax credits.

The original legislation (85% subsidy) projected that another 2.2 million individuals would enroll in subsidized COBRA continuation coverage on a full-year equivalent basis.  If you combine that with the 800,000 individuals currently participating in COBRA, there would be more than 3 million individuals enrolled in COBRA continuation for 2021.  Increased generosity with the final legislation (100% subsidy) means that these estimates are much too low and these numbers could possibly double, although no updated analysis has been released, to-date.

In conclusion, the COBRA continuation subsidy was a large piece of the ARP and will create a mass enrollment into COBRA continuation coverage from April 1st through September 30th 2021.  At 85% subsidy, the projected increase of enrollees was daunting but now that a 100% subsidy has been passed, it seems that numbers could double or even triple the original projected expectations at 85%.

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