On March 11, 2021, President Biden signed into law the American Rescue Plan Act (ARPA) that contains a new, temporary COBRA subsidy. From April 1, 2021 through September 31, 2021, the ARPA requires employers to cover 100% of an employee’s cost of continuing group health coverage under COBRA if the employee was eligible for COBRA continuation coverage during the indicated period regardless of whether the employee may not have previously elected coverage or discontinued coverage.  Employers that provide such paid coverage may recover the cost through deductions on quarterly payroll filings.  On April 7, 2021, the Department of Labor (DOL) released answers to frequently asked questions (FAQs) related to the ARPA COBRA subsidy and published model notices for use with the ARPA COBRA subsidy. 

Guidance Clarifications

The FAQs answer some of the questions about the ARPA subsidy, but there are still many areas in which employers will not have complete clarity.  One question that had been unclear from the sparse language of the ARPA statute is how Assistance Eligible Individuals could procure a COBRA subsidy if the employer does not notify them of this benefit. The DOL states that in this situation, the individual could notify the employer of their request to be treated as an Assistance Eligible Individual.

The statutory language is also unclear about which coverage options would be available under ARPA.  The FAQs confirm that COBRA beneficiaries can switch coverage options offered by their employer, provided certain conditions are met.  Individuals have 90 days to elect to change their coverage after the employer provides the ARPA COBRA notice.

Additionally, the FAQs clarify that Assistance Eligible Individuals can switch from state or federal “Marketplace” health insurance coverage to COBRA continuation coverage. However, it is not permissible to terminate Marketplace coverage retroactively.  The FAQs further indicate that the DOL is committed to enforcing the right of individuals to receive these benefits and indicate that employers may be subject to an excise tax of as much as $100 per qualified beneficiary but not more than $200 per family for each day that the employer violates the COBRA rules. 

Open Questions

The newly released FAQs still leave many unanswered questions. The FAQs do not address whether the ARPA subsidy will cover medical, dental and vision coverage or just medical coverage. They also do not clarify when a particular termination of employment should be considered voluntary or involuntary or whether the employer must provide the subsidy where the employer and employee resolve to mutually terminate their relationship.  Regarding this issue, it still is unclear if it would be considered “voluntary” if (i) a termination occurs under a voluntary exit incentive program, (ii) an employee leaves for “good reason,” or (iii) an employee retires after a mandated retirement age.

The DOL does not specifically state that disabled individuals or family members with second-notice rights, who are eligible for longer COBRA continuation periods, can elect coverage as long as their longer continuation period includes the April 1 to September 30 window.  The FAQ response states that the ARPA COBRA subsidy does not apply if the coverage period ended before April 1, 2021 and indicates this “generally” means that qualifying events before October 1, 2019 are not covered. Whether this would preclude application of the benefit to someone with a longer COBRA continuation period (e.g., 29 months in the case of a disabled individual) that is based on a qualifying event before October 1, 2019, is unclear.  The DOL may need to provide further guidance for employers to be able to fully administer their COBRA subsidy obligations under the ARPA.

Next Steps for Employers

Employers should send out notice to all individuals who are eligible for the ARPA COBRA subsidy using the DOL notice form. Employers must provide the notice to Assistance Eligible Individuals within 60 days following April 1, 2021, that is, by May 31, 2021.  In many cases, the employer’s COBRA administrator will handle this task, but the employer will have to work with COBRA administrators for contact information for former employees who might be eligible for the subsidy.  Employers should also be prepared to refund or credit payments by COBRA beneficiaries that they might have made during the April 1 to September 30 window prior to receiving notice about the employer-paid subsidy.