COBRA Subsidy: What Employers Need to Know

The American Rescue Act of 2021 (ARPA) is the latest federal law addressing the economic impact of the COVID-19 pandemic. Most aspects of the law do not directly affect the employer’s HR/Benefits function, but ARPA does include an optional extension of sick and family leave and the establishment of a COBRA subsidy. This article takes a closer look at the COBRA subsidy.

If you offer a group health plan, you’ll want to know how the subsidy works and what you, as the employer, are required to do. A newly-created Department of Labor (DOL) webpage provides guidance and model notices to help employers administer the subsidy.

 

What is the COBRA Subsidy?

Employees typically lose their group health coverage if their work hours are reduced to part-time status or if they are furloughed or terminated. This disruption in employment-based health coverage has been particularly acute during the COVID-19 pandemic. Although employees can elect continuation coverage under COBRA, the high premium cost makes it difficult for most people to afford COBRA. ARPA offers relief by providing a federal subsidy equal to the entire COBRA premium cost for up to six months from April 2021 through September 2021.

Who is eligible for the subsidy?

Persons eligible for the subsidy are called assistance eligible individuals or AEIs. An AEI must meet all the following conditions:

 

  • Loses or lost group health coverages because of the employee’s:
    • Reduction in hours; or
    • Involuntary termination of employment (except for gross misconduct);
  • Is eligible for continuation coverage under the federal COBRA law or a state’s mini-COBRA law;
  • Is not eligible for:
    • Other group health coverage (but excepted benefits such as limited-scope dental or vision plans, health flexible spending accounts (HFSAs), and qualified small employer health reimbursement arrangements (QSEHRAs) are disregarded); or
    • Medicare.

Does the subsidy apply to all group health plans and coverages?

The subsidy applies to almost all employer-sponsored health plans. They fall into two categories:

 

  • Group health plans that are subject to the federal COBRA law, which includes both insured and self-funded plans sponsored by a private-sector or governmental employer. The only exceptions from federal COBRA are small employer plans (employers with fewer than 20 workers) and church plans. Medical, dental, and vision coverages, and traditional health reimbursement arrangements (HRAs), are eligible for the subsidy. Health flexible spending accounts (HFSAs) are excluded.
  • Group health insurance policies that are subject to a state’s continuation coverage law (so-called mini-COBRA). Over 40 states currently have some type of mini-COBRA law. Most of them only apply to group medical policies for small employers that are not covered by the federal COBRA law.

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Combined HR Services provides practical human resources information and guidance based upon our experience in the industry and our experience with our clients.  Combined HR Services are not intended to be a substitute for professional advice.  Combined HR Services are designed to provide general information to human resources and/or business professionals regarding human resources situations commonly encountered.  Given the changing nature of federal, state and local legislation and the changing nature of court decisions, Combined HR Services cannot and will not guarantee that the information is completely current or accurate.  Combined HR Services do not include or constitute legal, business, international, regulatory, insurance, tax or financial advice.