In response to the ongoing COVID-19 pandemic, the American Rescue Plan Act of 2021 (ARPA) reinstated the federal COBRA subsidies that were last seen during the Great Recession under the American Recovery and Reinvestment Act of 2009. The relief will provide free COBRA continuation coverage to millions of Americans who lost coverage during the pandemic.
It also provides a second-chance election period for those who did not elect coverage in past months. Although the government will technically finance the subsidy, employers will be required to cover any COBRA premiums up front — and will be reimbursed in the form of a refundable tax credit.
It's important that both individual and small-business clients understand the new COBRA rules for 2021, which offer substantial benefits to out-of-work Americans and impose an immediate administrative burden on the employers responsible for administering employer-sponsored health plans.
ARPA COBRA Premiums: The Basics
The ARPA provides free COBRA coverage for a six-month period beginning April 1 through Sept. 30 (the "subsidy period") for employees and their family members who have lost or lose group health coverage because of involuntary termination or reduced work hours. The new 100% COBRA subsidy generally applies to all employees who lost employer-sponsored health care due to an involuntary loss of work since the COVID-19 pandemic began.
More specifically, assistance-eligible individuals (AEIs) include those who (1) are eligible for COBRA coverage during all or part of the subsidy period because of an involuntary termination of employment (other than for gross misconduct) or a reduction in hours or (2) elected COBRA coverage during the subsidy period or were already enrolled in COBRA coverage as of April 1.
Note also that employees who lost coverage as of April 2020 are potentially eligible for the entire six-month subsidy because those employees' 18-month COBRA period includes the period from April 1 through Sept. 30.
However, individuals who are eligible for other group health coverage or Medicare are not eligible.
