Changes to COBRA Coverage Coming April 1

From April 1-Sept. 20, 2021, the government will subsidize 100% of COBRA coverage premiums as part of the American Rescue Plan Act, signed into law on March 11, 2021. People who previously declined coverage or whose enrollment window closed can still enroll in COBRA.

Although the federal government is providing the subsidy, employers are required to pay any COBRA premiums upfront. The government will then provide the employer with a matching tax credit on their quarterly payroll tax filings. COBRA usually applies to employers with 20 or more employees.

Employers have to cover all of an employee’s COBRA costs for up to six months if the employee lost coverage because of a reduction in hours or if they were terminated for reasons other than “gross misconduct.” The subsidy isn’t for those who voluntarily quit, and employees have to choose to continue COBRA coverage. Also, the subsidy isn’t taxable for the employee.

Eligibility for employees and their covered dependents is for those who:

• Are already enrolled in COBRA,
• Didn’t opt for COBRA when it first became available to them, or
• Elected COBRA initially but let it lapse.

The subsidy applies to all group health benefits (e.g., medical, dental, and vision) but not to healthcare flexible spending arrangements.

The subsidy doesn’t lengthen the COBRA period, and it’s only available to those whose initial COBRA period ends — or would have if it didn’t lapse — during or after the six-month subsidy period. Generally, COBRA coverage can be continued for 18 months, unless the COBRA coverage is because the employee qualifies for Medicare; then, it provides a 36-month window.

So, if a former employee’s 18-month COBRA period begins after April 1, 2021, or ends before Sept. 30, 2021, the subsidy is then less than six months. The subsidy period can also end early for participants if they become eligible for coverage under any other group health plan or Medicare.

As an example, let’s say you as an employer had to let an employee go on Feb. 1, 2020. If they became eligible for COBRA coverage on March 1, 2020, then their 18-month period ends Aug. 31, 2021.

The government recently issued an FAQ, model notices, and forms. Employers should start reviewing their records and the rules now so they can answer employee questions and provide the required notices. Plan administrators must provide notice of the new election opportunity to eligible former employees by May 31, 2021.

If you have any questions about the COBRA subsidy, contact your financial advisor or HR professional.

This communication is intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.