The COBRA Subsidy: 5 Things Employers Need to Know

The American Rescue Plan Act (ARPA) includes a provision about COBRA that HR and payroll companies suggest that employers prepare for soon.  Beginning on April 1, 2021 and extending to September 30, 2021, any employers with plans subject to COBRA continuation will need to offer a 100% subsidy for up to six months for workers who lost their health insurance coverage for one of two reasons: they involuntarily were terminated, or their hours were reduced due to the pandemic.  This provision also extends the election period for eligible workers who didn’t initially elect to receive COBRA or let it lapse.  Here are the five things MP’s HR services team says that employers need to know to stay in compliance: 

5 Things Employers Need to Know About the 2021 COBRA Subsidy 

1. Which employers the COBRA subsidy applies to: Any employer that offers a group health plan, insured, or self-funded plans that are subject to COBRA and state continuation (not including health flexible spending accounts (FSA)) needs to be ready to comply with this provision of ARPA.  Employers are subject to COBRA if: 
   • It offers a private-sector group health plan that is maintained by the employers
   • Has at least 20 employees (this includes part and full-time workers) on no more than 50% of a typical business day in the previous calendar year  
   • They qualify under their state “mini-COBRA” laws

2. What employees are eligible for the COBRA subsidy: To be eligible for the COBRA subsidy, a worker must: 
   • Be a qualified beneficiary with a qualifying event on or after November 1, 2019 (as defined by COBRA or state continuation)
   • Elect coverage or have declined or discontinued COBRA coverage but elected within 60 days of receipt of the new COBRA extension notice
   • Not have other offers of employer-sponsored health insurance or Medicare coverage 
   • Did NOT voluntarily resign from their role

3. The COBRA subsidy does not extend coverage periods: Subsidized COBRA coverage will only last the usual 18 months after coverage was lost.  As per COBRA laws, coverage can be extended for a second qualifying event, with coverage totaling up to 36 months.   

4. How the COBRA subsidy works:  Employers, insurers, and multiemployer plan sponsors will offset the cost of the entire COBRA premium (including the 2% administrative fee).  They’ll do so through a refundable payroll tax credit against the Section 3111(b) Medicare tax.  For employers whose COBRA premium costs for affected plan participants exceed their Medicare payroll tax liability, it’s possible to file for a direct payment of the credit amount that remains.  Note that the IRS and DOL will be releasing further guidance on this, including what forms to use. 

5.  Notice requirements for employers: HR providers like MP suggest employers take special note of this part because all employers who provide COBRA will have to do this.  Employers that are subject to COBRA laws will need to give their employees and former employees notice of the subsidy, the extended election period for COBRA coverage, and the expiration of the subsidy.  MP’s HR consulting experts suggest that employers use the model notices that the DOL will be issuing by April 10, 2021.  If employers have a third-party administrator (TPA) for their COBRA coverage, they should confirm that the TPA will send the required notices to eligible workers.  They will likely need to designate a list of eligible workers to receive the required notices.