As part of the American Rescue Plan Act of 2021 (ARPA), which was signed into law March 11, 2021, employers who are subject to COBRA or state mini-COBRA law, must pay 100% of their involuntarily terminated employees’ COBRA premiums during the period April 1, 2021 through September 30, 2021.
Involuntarily terminated employees do not include those terminated for gross misconduct; however, it does include those individuals who may have lost health care coverage due to an involuntary reduction of hours. This subsidy is not limited to those individuals who are terminated during the April 1 through September 30, 2021, subsidy period but includes any individual who was previously involuntarily terminated and is still within the 18-month (or 9-month for PA mini-COBRA or 36-month special circumstance) coverage period even if they did not originally elect coverage. Employees who voluntarily left their job do not qualify for the subsidy, nor do individuals who qualify for COBRA coverage due to anything other than involuntary reduction of hours/termination. In addition, individuals who are eligible for other coverage, such as through a new employer, are not eligible for the ARPA subsidy and face a $250 penalty for willful or fraudulent claim of eligibility.
A COBRA eligible individual must be enrolled in or elect COBRA during the subsidy period (April 1 through September 30) to be entitled to the subsidy. The subsidy ends on September 30, 2021, or sooner if their COBRA coverage period ends prior to September 30, 2021. In other words, if an employee was involuntarily terminated (for other than gross misconduct) on January 20, 2020, and was eligible for COBRA coverage beginning February 1, 2020, whether or not they elected coverage, they would be eligible for this 100% subsidy COBRA coverage for the period April 1, 2021 through August 31, 2021. This subsidy does not extend a person’s eligible coverage period.
Employers are required to provide written notification to previously terminated employees who are still within the coverage period, even if they initially declined coverage, within 60 days of April 1, 2021. The new election period is 60 days from the date of the employer’s written notice. If elected, the participant does not need to pay premiums back to the original COBRA coverage period through March 31, 2021. They can be covered only for this special subsidy period…but not longer than the COBRA coverage period for which they’re eligible considering their termination date.
Employers must also modify their current qualifying event letters to include the subsidy information. You should work with your COBRA third-party administrator or visit the www.dol.gov website for help with these letters/notices. (At the time of this blog posting an updated model notice is not available on the DOL website, but they are required to have it posted no later than April 30, 2021.)
The good news here is that qualifying employers will receive a dollar-for-dollar payroll tax credit for the subsidies they were required to cover. Since the ARPA is so new, the IRS has not yet released full details on this payroll tax credit. For our payroll clients, it will be included on their second and third quarter Forms 941 when applicable. Please be certain to provide your payroll processors with the details of the subsidies paid.
If you have further questions about the ARPA COBRA subsidy for your business, please contact your accountant or payroll processor.