US Department of Labor Issues Guidelines to Clarify COBRA Subsidy Under the American Rescue Plan Act of 2021 | Cole Schotz
As part of the American Rescue Plan Act of 2021 (“ARPA”), Congress enacted a preliminary Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) for certain individuals for coverage periods from April 1, 2021 to September 30, 2021 (the ” Funding period “). On April 7, 2021, the United States Department of Labor (“DOL”) issued FAQs to help employers and plan administrators understand the subsidy.
The subsidy stipulates that the employee does not have to pay any COBRA premiums during the subsidy period, but that the employer pays 100% of the subsidy to “Assistance Eligible Individuals” (“AIAs”) and is then repaid through tax credits. The allowance applies to any “group health insurance” funded by private employers or workers’ organizations (trade unions) subject to the COBRA rules under the Employee Retirement Income Security Act of 1974 (ERISA). They also apply to plans funded by state or local governments that are subject to the continuation of the Public Health Services Act. Premium support is also available for group health insurance policies required under state mini-COBRA laws. ” See Question # 2 of the DOL FAQs.
An AEOI is any employee who:
- notice is given involuntarily during the funding period or shortened due to a change in the company, a change from full-time to part-time, temporary leave of absence or participation in a labor strike; and
- Selects the COBRA continuation coverage.
AEIs include those who have chosen COBRA as of April 1, 2021, and include spouses and other dependents. Support ends before September 30, 2021 if an employee is eligible for another group health insurance plan (ex.
Employees and their relatives are not entitled to the subsidy if the employee voluntarily terminated the employment relationship by giving notice or the insurance coverage is lost due to divorce or for any other voluntary reason. The grant is also not due to any employee who is terminated due to gross misconduct.
Significantly, plan administrators need AEIs prior to 1st coverage due to the inability to continue paying the premium. These AEIs are now entitled to a second bite of the apple to choose COBRA coverage and receive the subsidy as long as the maximum COBRA period has not expired by April 1, 2021 (i.e. generally those with relevant qualifying events before October 1, 2019). The aforementioned special election notices must be sent to these AEOI by May 31, 2021.
Further information and notes on the COBRA Premium Subsidy Model are available on the DOL website.