Free COBRA Premiums Go into Effect April 1

Signed into law in March 2021, the American Rescue Plan Act (ARPA) includes free COBRA premiums. Specifically, the ARPA contains a 100% premium subsidy so eligible individuals can receive health insurance for up to six months. The assistance is available beginning April 1st, 2021, and ends September 30th, 2021 (the Free COBRA Period). The free COBRA premiums are among the many provisions included within the ARPA. The information below explains some of the key provisions of the COBRA subsidy.

Eligibility

Individuals eligible for free COBRA premiums, known as Assistance Eligible Individuals, include:

• anyone whose employment is involuntarily terminated (other than for gross misconduct);
• workers who experience a reduction in hours; and
• those who are eligible for COBRA during the Free COBRA Period.

Additionally, Assistance Eligible Individuals include those who didn’t elect COBRA coverage or discontinued COBRA coverage before April 1st, 2021. The individuals, however, must still be within their maximum 18-month COBRA period. As of April 1st, 2021, any non-enrolled Assistance Eligible Individuals have 60 days to elect coverage.

Expiration

Assistance Eligible Individuals will receive the free premiums beginning on April 1 and ending on the earliest of the following:

• September 30th, 2021;
• expiration of the individual’s maximum COBRA period; or
• the date the individual becomes eligible for coverage under another group health plan or Medicare.

 Required Notices

The COBRA subsidy creates two new COBRA notice requirements (in addition to the standard COBRA eligibility notice). Plan administrators must notify Assistance Eligible Individuals by May 30th, 2021. Namely, the notice must inform subsidy-eligible individuals to either enroll or enroll again in COBRA during the subsidy period. Also, Assistance Eligible Individuals must receive notice of the subsidy’s expiration 15 to 45 days before that date.

Payment of Premiums and Reimbursement

Assistance Eligible Individuals enrolled in COBRA coverage are not charged COBRA premiums while eligible for the free premiums. During the subsidy period, the health care plan sponsor assumes the responsibility to pay COBRA premiums on the individual’s behalf. Employers, who are plan sponsors, can obtain reimbursement for all COBRA premiums paid through a payroll tax credit. For credit amounts exceeding payroll taxes, the employer can apply for a refund of an overpayment.

Employer Takeaways

In summary, the free COBRA premiums included within the ARPA change the way employers can offer COBRA coverage. The Department of Labor and the Internal Revenue Service has the authority to release any future additional guidance. Employers should continue to follow those federal agencies for any updates to the new COBRA subsidy.