COBRA Premium Subsidy and Special Election Period

Worker ThinkingIn March 2021 the American Rescue Plan Act of 2021 (ARPA) was signed into law with COBRA subsidy provisions. ARPA created a 6-month subsidy period – April 1, 2021 to September 30, 2021 – during which certain assistance eligible individuals (AEI) may receive fully subsidized COBRA coverage.

An AEI is a qualified beneficiary who is eligible for COBRA coverage between April 1, 2021 and September 30, 2021 due to an involuntary termination of employment or reduction in qualifying hours, if the AEI elects such coverage. A qualifying AEI would not pay COBRA premiums during the subsidy period. The subsidy period does not extend the maximum COBRA coverage period; ARPA simply suspends the AEI’s obligation to pay for COBRA for up to 6 months.

If an AEI did not elect COBRA coverage previously, or timely elected but discontinued coverage before April 1, 2021, the AEI is entitled to the subsidy if he/she makes an election within a new 60-day Special COBRA Election Period under ARPA.

All group health plans that are subject to COBRA, except health flexible spending accounts, must provide this subsidized coverage. Providing coverage is an employer requirement, and employers will need to collect the subsidy from the federal government. Employers will pay for their AEIs’ COBRA coverage and be reimbursed through credits against certain payroll taxes.

In early April, HMAA notified applicable employer groups of the subsidy and included a list of potential AEIs. HMAA will send notices to affected individuals prior to the deadline of May 31, 2021. Employers that self-administer their company’s COBRA coverage will be responsible for sending notices to their affected individuals.

For more information about ARPA, you may refer to www.whitehouse.gov/american-rescue-plan. Due to the fluidity and complexity of the requirements, please consult with your legal or other advisor as needed.

This notice and its FAQs were last updated on April 19, 2021; are based on HMAA’s interpretation; do not represent financial, tax, or legal advice; and are subject to future review and modification.

Frequently Asked Questions

When does the Subsidy Period begin and end?2021-04-19T18:03:38+00:00

The Subsidy Period begins on the later of April 1, 2021 or the date the AEI becomes eligible for COBRA coverage. The Subsidy Period ends on the earliest of (a) September 30, 2021; (b) the end of the 18-month maximum COBRA coverage period; or (c) the date the individual becomes eligible for other group health coverage or Medicare.

For example, imagine five employees: Amy, Barry, Cathy, Danny, and Elena. These employees lost their employer health plan coverage due to involuntarily termination on January 31, 2020.

  • Amy elected COBRA coverage a few weeks after termination by submitting a COBRA election form. As of March 31, 2021, Amy still has COBRA coverage. Amy’s 18-month maximum COBRA period will end June 30, 2021. Amy is entitled to the COBRA subsidy for the months of April, May, and June 2021.
  • Barry elected COBRA coverage after termination, but discontinued it after two months. If Barry elects COBRA coverage during the extended election period outlined below, Barry will receive subsidized COBRA coverage for April, May, and June 2021.
  • Cathy did not elect COBRA coverage following termination of employment. Like Barry, if Cathy elects COBRA coverage during the extended election period, Cathy will receive subsidized COBRA coverage for April, May, and June 2021.
  • Danny became entitled to Medicare in March 2021. Even if he does not enroll in Medicare, Danny is not eligible for the COBRA subsidy because of Medicare entitlement.
  • Upon employment termination, Elena was eligible to enroll in her spouse’s health plan. Elena did not enroll at that time, and her spouse’s plan requires timely enrollment upon a qualifying event or during open enrollment. Elena may be eligible for the COBRA subsidy until a new qualifying event occurs or her spouse’s plan has an open enrollment during the COBRA subsidy period.
Who is considered an Assistance Eligible Individual (AEI)?2021-04-19T18:03:48+00:00

An employee and his/her covered dependents:

  1. Who would be entitled to COBRA coverage under a health plan any time between April 1, 2021 and September 30, 2021 due to the employee’s involuntary termination of employment or reduction in hours (not gross misconduct); or
  2. Whose current COBRA continuation coverage period includes some or all of the subsidy period.
How does an AEI qualify for the subsidy?2021-04-19T18:03:55+00:00

There are 3 ways an AEI may qualify for the subsidy:

  1. The AEI elects COBRA coverage when he/she first becomes eligible for COBRA coverage during the 6-month subsidy period.
  2. The AEI elected COBRA for coverage prior to April 1, 2021, has been paying premiums, remains enrolled in COBRA coverage at any time during the subsidy period, and elects the subsidy.
  3. If the AEI did not elect COBRA coverage previously, or timely elected but discontinued coverage before April 1, 2021, the AEI is entitled to the subsidy if he/she makes an election within the new 60-day Special COBRA Election Period under ARPA. This could include individuals impacted by the Joint Notice “Outbreak Period” under EBSA Disaster Relief Notice 2021-01 released by the Department of Labor (DOL).

In each case, a special election form is required which affirms the qualifying event was involuntary employment or a reduction of hours, and that the individual is not eligible for Medicare or any other group health plan, including a spouse’s plan.

What is the Special COBRA Election Period?2021-04-19T18:04:09+00:00

ARPA created a Special COBRA Election Period for AEIs to enroll and receive subsidized coverage for up to 6 months. Employers must offer this special election opportunity to AEIs who are eligible for subsidies. The Special COBRA Election Period lasts for 60 days, which begins when the AEI receives notice of the opportunity.

What are the Notice Requirements?2021-04-19T18:04:13+00:00

ARPA imposed three notice requirements on employers, which HMAA can send on your behalf if your company does not self-administer COBRA:

  1. Special Election Opportunity: No later than May 31, 2021, employers must provide notice to AEIs who are eligible for the special election opportunity.
  2. New Qualifying Beneficiaries: Employers must notify AEIs who become eligible to elect COBRA during the subsidy period of the subsidy’s availability.
  3. Notice of Subsidy Termination: Employers must generally provide a termination notice to AEIs 15 to 45 days prior to the expiration of the AEI’s COBRA subsidy. This does not apply if the AEI is losing the subsidy due to becoming eligible for another group health plan or Medicare.
How Does an Employer Get Reimbursed for the Premium Subsidy?2021-04-19T18:04:18+00:00

For the duration of the Subsidy Period, plan sponsors will pay COBRA premiums for their AEIs. The full amount of the premium will be reimbursed by the federal government via an employer tax credit. The sponsor of a plan may claim a credit against its liability for Medicare payroll taxes.

What should Employers and Plan Administrators do?2021-04-19T18:02:20+00:00
  1. Identify who has had an involuntary termination of employment or reduction in hours and is still within the 18-month COBRA period.
  2. Provide these individuals with the notice and special election form to elect COBRA. HMAA will do this if we administer COBRA on your behalf.
  3. Modify your payroll administration to incorporate the COBRA subsidy. This will include:
  • Identifying AEIs
  • Calculating the subsidy amount
  • Tracking the subsidy duration for each AEI
  1. Keep track of premiums paid for subsidized COBRA in order to accurately claim tax credits.
  2. Prepare to provide the expiration notice to AEIs other than those whose coverage is expiring due to other group health coverage or Medicare. HMAA will do this if we administer COBRA on your behalf.

The above is provided for informational purposes only, and does not constitute business or legal advice.

2021-04-19T18:59:40+00:00
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