The American Rescue Plan Act of 2021 provides generous 100% COBRA coverage premium subsidies for employees and former employees who lose coverage due to a termination or reduction in hours. Employers provide the COBRA premiums for the employee, and employers are reimbursed through payroll tax credits. The administrative requirements of the law are complicated for employers and filled with landmines if an employer is not careful about compliance. Employers should begin identifying eligible individuals and prepare for the April 1, 2021 effective date.

Who qualifies?

First, the law applies to “assistance eligible individuals,” defined as: (1) employees and qualified beneficiaries who previously qualified for COBRA but did not elect; (2) employees and qualified beneficiaries who previously elected COBRA but allowed it to lapse; and (3) employees and qualified beneficiaries who lose coverage between April 1, 2021 and September 30, 2021. The loss of coverage must be due to an involuntary termination or reduction in hours. The loss in coverage may not be due to a voluntary event. However, it does not matter if the qualifying event was related to the COVID-19 pandemic.

Note: Employers with less than 20 employees covered by Ohio’s Mini-COBRA law still qualify for the subsidy.

What are the notice requirements?

Individuals in categories 1 and 2 must be provided notice of their qualification for the subsidy by May 31, 2021. They have 60 days from receipt of the notice to make or renew their COBRA election, for which coverage is retroactive to April 1, 2021. Individuals in categories 1 and 2 are those who lose coverage looking back between now and November 2019.

Assistance eligible individuals must be notified 15-45 days before September 30, 2021 that the subsidy will end.

The Department of Labor should issue model notices by April 10, 2021 for new elections and April 25, 2021 for the termination notices.

How long are individuals covered?

Coverage for assistance eligible individuals will begin on April 1, 2021, and end on September 1, 2021 (unless otherwise extended by a future Congressional Act) or when coverage would have ended under COBRA (usually 18 months from the qualifying event). A gap in coverage may occur before the April 1, 2021 effective date, and employees are not required to carry COBRA continuation coverage at their own expense during the gap period.

What if the individual gains other coverage?

The individual is required to notify the employer if he/she obtains other group health coverage or Medicare. The subsidy ceases at that point. Failure to provide this notice can result in a $250 penalty, or more for intentional violations.