Employers May Be Obligated To Pay 100% Of COBRA Premiums Pursuant To Stimulus Bill
The newly enacted American Rescue Plan Act of 2021 (the “ARP”) requires certain employers to offer free COBRA between April 1, 2021, and September 30, 2021, to eligible employees who lost their jobs and for their covered relatives that will allow them to stay on their employer-sponsored health plan. Although employers are responsible for paying these premiums, the ARP provides the employers with a 100% federal subsidy of those premiums in the form of a payroll tax credit against the employer’s quarterly taxes. The premium assistance will be available from April 1, 2021, through Sept. 30, 2021, regardless of whether COBRA coverage began earlier or ends later.
Who Is Eligible For COBRA Premiums?
Employees and their qualifying dependents are eligible to receive this benefit include an employee who, in the time period between April 1 and Sept. 30, 2021, is eligible for COBRA coverage due to an involuntary termination (other than for gross misconduct) or a reduction in hours and elects such coverage. Pursuant to the ARP, a terminated eligible employee that has not elected COBRA coverage by April 1, or who has elected COBRA coverage but then discontinued it, may elect COBRA coverage during a special enrollment period starting April 1 and ending 60 days after the date on which the COBRA notification was delivered. These individuals may receive the subsidy on a prospective basis, without having to elect and pay for COBRA retroactively for months prior to the subsidy becoming available.
COBRA Premium Notice Requirements
To comply with ARP, employers, their benefits providers and third-party administrators should quickly identify potential beneficiaries that are eligible to receive this assistance and provide notice about the new benefits and the special enrollment period. Specifically, the ARP mandates that COBRA notices advising of the availability of the subsidy and the special 60-day enrollment period must be sent to potential qualified beneficiaries by May 31, 2021.
Failure to comply with the notice requirement can result in substantial excise taxes to the employer of up to $100 per qualified beneficiary (up to $200 per family) for each day that the COBRA rules are violated. Model notices can be found here. In addition to the foregoing, Employers must provide the expiration notices 15-45 days before an individual’s premium assistance is scheduled to end.
Employers will also have to take steps to claim the tax credit on those former employees who utilize the COBRA subsidy.