The recently enacted American Rescue Plan Act of 2021 includes a 100% COBRA subsidy for up to six months for employees laid off during the COVID-19 pandemic. The subsidy is in effect through September 30.
Due to the short ramping up period, it’s imperative that employers who have laid off workers, or who plan to do so, start preparing to notify them.
The Consolidated Omnibus Budget Reconciliation Act requires group health plans sponsored by employers with 20 or more employees to offer staff and their families the opportunity for a temporary extension of health coverage (called continuation coverage) after they have quit or been laid off for 18 months. The employees will usually be responsible for the entire premium.
Who is eligible?
Eligible individuals include:
- Workers who were previously laid off or lost their benefits and became eligible for COBRA continuation coverage but chose not to purchase it, as long as they would still be eligible now. Example: A worker who was laid off in November 2020 but rejected the offer of COBRA coverage then.
- Individuals who previously elected COBRA continuation coverage, but later dropped it, as long as they would still be eligible now. Example: A worker was laid off in August 2020, elected and purchased COBRA coverage, but dropped the coverage in January.
- Individuals who were involuntarily terminated or experienced a reduction in hours, and who timely elect COBRA continuation coverage after April 1.
Individuals are not eligible for a subsidy:
- If they voluntarily resigned from their job.
- They become eligible for other employer coverage or Medicare.
- They are beyond their maximum COBRA coverage period (which under federal law is 18 months, and under California law may be up to 36 months).
The subsidy applies to all health coverage that COBRA usually covers: health insurance, and dental and vision coverage too. Generally, the coverage that employers offer Assistance Eligible Individuals (AEIs) should be the same coverage in effect prior to their COBRA-qualifying events.
Individuals who qualify for the COBRA subsidy are not required to pay a premium.
The group health plan will cover the cost of the coverage, which will be reimbursed (including any administrative fee) by the U.S. government via a payroll tax credit.
When notifying newly eligible individuals, the information can be included with the COBRA election notice or a separate notice that would come along with the election packet.
The notices must include:
- Notification of the availability of subsidies.
- A prominently displayed description of the AEI’s right to the subsidy and conditions.
- The forms necessary to establish eligibility.
- A description of the special election period.
- A description of the qualified beneficiary’s obligation to notify the plan when they are no longer eligible for coverage.
- Contact information of the plan administrator and any other person maintaining relevant information in connection with the subsidy.
Important: The Department of Labor is expected to provide model language for these notices by April 10.
What you should do
There are a number of steps employers need to take as the ramping up period is quite short:
- Coordinate with your COBRA administrator to ensure that you agree about who should identify eligible individuals and who will be sending out notifications.
- If that is you, identify those individuals who may be eligible for the COBRA subsidy and who may be eligible to make a new election.
- Prepare notification documents.
- Notify all eligible individuals.