American Rescue Plan Act - Employer Paid COBRA
Under Section 9501 of the American Rescue Plan Act (ARPA), free COBRA
coverage must be offered to COBRA qualified beneficiaries who are enrolled for
COBRA coverage under a group health plan on April 1, 2021 through September
30, 2021, if coverage under the plan is lost, or previously was lost, due to a
? reduction in work hours (e.g., layoff, furlough, etc.), or
? termination of employment (other than a voluntary termination)
The offer of free COBRA coverage will cease if an individual becomes eligible for
other group health plan coverage or Medicare. Thus, free COBRA coverage must
be offered on a prospective basis for losses of coverage that occur from April 1,
2021 through September 30, 2021, on account of a covered employee’s reduction
in work hours or termination of employment (other than voluntary)
This means if an employee and family members lost coverage (based on the
above definition) during any time from November 1, 2019 through a future date
of September 30, 2021, they are eligible for employer paid COBRA coverage for
the future period of April 1, 2021 through September 30, 2021, but not past the
original COBRA expiration date.
In addition, it appears that free COBRA coverage must be offered to qualified
beneficiaries who are in a regular COBRA coverage election and can elect COBRA
coverage with an election date that is retroactive back to April 1, 2021 or after.
If any of the foregoing rules do apply, the order of free COBRA coverage must be
made effective as of April 1, 2021. However, free COBRA coverage does not have
to be extended past the end of what would have been the normal expiration date
for the underlying COBRA coverage period (e.g., 18 months from the date of a
covered employee’s termination of employment or reduction in work hours).
Notice and Election Issues
Fortunately, the law requires the Department of Labor to issue within 30 days, a
model notice for employers to use to advise qualified beneficiaries of their rights
under the law. Plan administrators are required to give notices to eligible
qualified beneficiaries by not later than May 30, 2021.
Once an eligible qualified beneficiary receives a notice, the individual is entitled to
a 60-day period to elect the COBRA coverage. Any coverage elections will be
made retroactive back to April 1, 2021.
The law also provides a tax penalty if an individual fails to notify the group health
plan that the individual is eligible for coverage under another group health plan.
The tax penalty generally is $250 (or a higher amount if the failure is intentional).
The notice to the individual will also have to explain the employee notice and
Finally, the law also imposes another notice obligation. If a qualified beneficiary
does elect free COBRA coverage, the plan administrator is required to notify the
individual 15 – 45 days before the free COBRA coverage will expire. The DOL is
planning to provide a model notice for this situation, in addition to the previous
Tax Credits and Insurance Company Issues
To help offset the costs of providing free COBRA coverage, the law makes
available tax credits that may be taken against employer Medicare taxes. The tax
credits are based on the COBRA premiums that would have been payable by the
qualified beneficiary for the relevant free COBRA coverage.
Except as may otherwise be provided by the Secretary of the Treasury, the tax
credits are provided to the following persons:
? If the plan is a multiemployer plan, the multiemployer plan itself.
? If the plan is fully or partially self-insured, to the employer that sponsors
the plan (including state and local governmental employers).
? If the plan is not described above, to the insurance company
If an employer has a fully insured plan, presumably the employer will have to
continue to pay premiums to the insurer for the enrollment of any qualified beneficiaries.
Any questions please do not hesitate to call
Thomas Kohler 848-333-5994