As part of the recently enacted American Rescue Plan Act of 2021, an assistance eligible individual (“AEI”) who incurs a COBRA qualifying event because of an involuntary termination of employment or reduction in hours will be eligible for a 100% subsidy for their COBRA costs. This subsidy will apply for coverage periods between April 1, 2021 through September 30, 2021. Depending on the type of health plan involved, the subsidy will take the form of an advance by the employer, plan or insurer, which advance is then reimbursed by the Federal government through a tax credit.
Employers must update COBRA notices and issue extended notices describing the subsidy within 60 days of the April 1, 2021 effective date. In addition, an additional notice alerting AEIs to the expiration of the subsidy must also be provided. The U.S. Department of Labor is required to provide model notices for these purposes by April 11, 2021.
Further, the new rules provide that AEIs who had an involuntary termination of employment or reduction in hours within the previous 18 months and who did not timely elect COBRA must be provided with a new 60-day election period following the date that they receive required notice of the new COBRA subsidy. Also, employer may allow AEIs to change existing COBRA elections to other plan options that have the cost premiums.
There are several unanswered questions regarding the COBRA subsidy legislation and the obligations it imposes on employers. It is expected that additional guidance may be provided when the DOL issues the model notices.
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If you have questions or would like additional information, please contact any of our Labor & Employment attorneys or the primary EGS attorney with whom you work.
