One of the many lifelines for workers in the American Rescue Plan Act of 2021 (ARPA) is a new COBRA subsidy that completely covers the cost of continuation coverage for qualifying individuals from April 2021 through September 2021. Here’s what you need to know about this important health insurance assistance.
Recap: COBRA Subsidy 2021 Eligibility
Employees who involuntarily lost their health insurance benefits any time after Nov. 1, 2019, may be eligible for up to 6 months of free COBRA from April 1, 2021, through Sept. 30, 2021.
There are three categories of people who are eligible:
1. Current: Anyone currently on COBRA.
2. Future: Employees who become eligible for COBRA between April 1, 2021, and Sept. 30, 2021.
3. Past: Anyone who became eligible for COBRA after Nov.1, 2019, but waived coverage immediately or before their COBRA eligibility period (usually 18 months) ended.
Employees who are initially eligible for the subsidy will lose their eligibility under the following circumstances:
- They become eligible for health insurance under a new plan.
- They reach the date in which their COBRA coverage normally expires e.g. their 18 months ends in July.
According to an article in Forbes, employers and employees alike should note that the subsidy only covers the cost of the health insurance premiums, not copays, deductibles, or co-insurance. Still, as The National Law Review points out, the new legislation "provides free COBRA coverage to Assistance Eligible Individuals for the Subsidy Period" and the subsidy itself is non-taxable for eligible individuals.
UPDATED: Involuntary Termination Clarifications for COBRA Subsidy
In May 2021, the IRS issued Notice 2021-31, which used FAQs to clarify questions about employee eligibility. Notably, employers are required to provide the COBRA subsidy to eligible workers who experienced an involuntary termination or reduction in hours as long as these individuals didn't exhaust their maximum COBRA coverage period as of April 1, 2021. The special election coverage period ends on May 31, 2021.
The same FAQs help employers determine the meaning of "involuntary termination." According to law firm Seyfarth Shaw LLP, this can include:
- Voluntary termination for good reason "[w]here the termination is due to employer action that results in a material negative change in the employment relationship analogous to a constructive discharge"
- Termination while absent due to illness or disability only if the employee was expected to return to work following the illness or disability
- If the employee chooses to retire instead of being terminated (and if the employee knew of this impending involuntary termination)
- Resignation due to a material change in the geographic location of employment
- Non-renewal of the employment contract if an employee is willing and able to renew the contract
Review questions 24 through 34 in the Notice (link provided above) for additional information about these clarifications.
Additional COBRA Subsidy Clarifications
In the same notice, the IRS answered additional lingering questions about the COBRA subsidy. These include:
1. Second-Chance Elections: Individuals can qualify for the subsidy more than once if they experience multiple qualifying events during the appropriate time period.
2. Medicare Tax Credit Calculations: Review Q-63 through Q-81 in Notice 2021-31 to learn how to calculate and claim the refundable payroll tax credit.
3. Employee Eligibility Self-Certification: Employers can require employees to self-certify (or attest) that they're eligible for COBRA coverage through the subsidy. See Q-4 in the Notice for more information.