Temporary COBRA Premium Subsidy and Payroll Tax Credit
In addition to tax credits for voluntary FFCRA compliance, which we discussed in our earlier article (HERE), the American Rescue Plan Act of 2021 created a 100% COBRA premium subsidy as well as special COBRA enrollment rights for eligible individuals who lost or lose group health plan coverage due to an involuntary termination of employment or reduction in hours. The requirement does not apply to employees who voluntarily terminate employment.
Employers are required to cover 100% of the employee’s cost of continuing group health coverage under COBRA for up to six months if an employee/former employee has lost coverage under their employer’s plan due to a reduction in hours or involuntary termination (not including termination for gross misconduct), if they elect COBRA continuation. Then, the government will make the employer whole by providing a tax credit on the employer’s quarterly tax filings.
The COBRA subsidy period is between April 1, 2021 and September 30, 2021. The subsidy is only available to those whose initial COBRA period ends, or would have ended if COBRA had been elected/did not lapse, during the subsidy period. The subsidy period does not extend the usual length of COBRA. For example, an individual who was terminated on December 31, 2019 and became COBRA eligible on January 1, 2020 would have coverage through June 30, 2021 and could be subsidized for three months of coverage.
For individuals who did not originally elect COBRA coverage, there will be a special enrollment period beginning April 1, 2021 during which employers must be allowed to elect coverage. Such coverage is not retroactive to the date the group health plan coverage was originally lost, and employers must notify employees of the special enrollment period.
The special enrollment period will end 60 days after the delivery of a new COBRA notification. The plan administrators must send out an updated COBRA election notice, a new special enrollment period notice (by May 31, 2021), and a new notice of subsidy expiration (should the individual’s subsidy expire prior to September 30, 2021). As of today, March 26, 2021, the Department of Labor has not published model notices, but it is expected to do so soon.
We recommend that employers begin looking over their records to determine if any employees or former employees may be eligible and reach out to your benefit plan administrators to begin coordinating notices and making sure that persons already enrolled will receive the subsidy. If you have any questions regarding employers’ obligations surrounding this subsidy and tax credit, please give us a call at (916) 569-1700.