Congress has made another avenue of health coverage more accessible by fully subsidizing the cost of COBRA coverage (or the Consolidated Omnibus Budget Reconciliation Act of 1985) from April 1 - September 30, 2021 for individuals who lost their health coverage due to an involuntary termination or a reduction in hours under the American Rescue Plan Act of 2021 (ARP).

Generally, COBRA coverage is required for employers with 20 or more employees in at least 50% of typical business days in the prior calendar year.  The employer must notify the employee of their COBRA rights within 14 days of the qualifying event with an election notice. The employee then has 60 days to decide whether or not they want to continue coverage.   Except in the case of gross misconduct, COBRA must be extended to employees who were voluntarily or involuntarily terminated.   It also applies in situations where there is a reduction of hours that make the employee fall out of eligibility for the health coverage.   The maximum coverage period generally is 18 months. The plan typically may charge up to 102% (including administrative fee) of the cost of coverage for similarly situated active participants (the COBRA premium). 

The ARP makes the premium assistance available for “Assistance Eligible Individuals.” An Assistance Eligible Individual is a COBRA qualified beneficiary who meets the following requirements during the period from April 1, 2021 through September 30, 2021:

•  Is eligible for COBRA continuation coverage by reason of a qualifying event that is a reduction in hours (such as reduced hours due to change in a business’s hours of operations, a change from full-time to part-time status, taking of a temporary leave of absence, or an individual’s participation in a lawful labor strike, as long as the  individual remains an employee at the time that hours are reduced) or an involuntary  termination of employment (not including a voluntary termination); and

•  Elects COBRA continuation coverage.

The premium assistance can last from April 1, 2021 through September 30, 2021.   However, it will end earlier if:

• The employee becomes eligible for another group health plan, such as a plan sponsored by a new employer or a spouse’s employer (not including excepted benefits, a QSEHRA, or a health FSA), or they become eligible for Medicare, or

• They reach the end of their maximum COBRA continuation coverage period.

The employee is not eligible for the premium assistance if they are eligible for other group health coverage, such as through a new employer’s plan or a spouse’s plan (not including excepted benefits, a qualified small employer health reimbursement arrangement (QSEHRA), or a health flexible spending arrangement (FSA)), or if they are eligible for Medicare.

A special situation arises for an eligible individual who does not have a COBRA election in effect by April 1, 2021.  They may elect COBRA coverage during an extended election period under ARPA. This also applies to individuals who elected COBRA but discontinued it before April 1, 2021. For eligible individuals who become entitled to COBRA coverage from April 1 to September 30, 2021, the plan administrator must include notice of the availability of premium assistance with its usual COBRA notice. For individuals already on COBRA who became entitled earlier, or who became entitled to COBRA coverage earlier, but declined or dropped coverage, the plan administrator must send notice of the availability of premium assistance and, if applicable, the extended COBRA election period by May 31, 2021.  These model notices may be found here.

However, this additional election period does not extend the period of COBRA continuation coverage beyond the original maximum period. COBRA continuation coverage with premium assistance elected in this additional election period begins with the first period of coverage beginning on or after April 1, 2021.

The employer may, but is not required to, allow an eligible individual who already has elected COBRA coverage to change to a less expensive enrollment option under the plan. The individual has 90 days after receiving a notice of this right to elect different coverage. These changes will require group health plans to make temporary changes to their COBRA election procedures.

An employer or plan to whom COBRA premiums are payable is entitled to a tax credit for the amount of the premium assistance.  Therefore, it will be important to work with legal counsel to review eligibility for the new COBRA requirements, review terminations before April 1 to determine who is eligible, and send out a notice to them before May 31^st.  The FAQs provide that employers may be subject to an excise tax of $100 per qualified beneficiary per day, not to exceed $200 per family per day, for failure to timely provided the above notices.