The new COVID-19 relief law, which is now known as the American Rescue Plan Act (ARPA), includes changes to COBRA premiums that apply to all COBRA-eligible employees, not just those who are eligible for COBRA because of a coronavirus-related event. In a nutshell, ARPA’s COBRA provisions require the following:
- Eligible employees who elect COBRA coverage do not have to pay a premium for COBRA coverage unless they voluntarily terminated their employment or are (or become) eligible for coverage under another group health plan or Medicare.
- This waiver of the premium payment requirement is intended to cover employees and their families. It applies to any individual who is a qualified beneficiary under COBRA, not just the employee.
- Under some circumstances, employers can allow employees who are already on COBRA to switch to different coverage under a plan offered by the plan sponsor if the premium for the different coverage is not higher.
- Individuals who are COBRA-eligible but did not previously elect COBRA coverage, or who discontinued their COBRA coverage before April 1, 2021, have a 60-day window to elect coverage after they receive the new notice required under ARPA.
- ARPA will require employers to provide three types of new notices to employees:
- New notices to employees who did not previously elect COBRA coverage.
- Amended or supplemental COBRA notices for individuals who become eligible for COBRA coverage from April 1, 2021 - September 30, 2021. DOL, HHS and the Department of the Treasury are tasked with developing a model notice for this within 30 days of ARPA’s effective date.
- Additional notices to send to beneficiaries reminding them that the premium assistance is ending 15-45 days before the premium assistance expires. DOL, HHS and the Department of the Treasury are tasked with developing a model notice for this within 45 days of ARPA’s effective date.
- Employers (or whoever would normally receive the premium payments) are entitled to a tax credit for the premiums, which is limited to certain employment taxes. Unlike last year’s CARES Act, the tax credit is also available to state and local governments and Indian tribal governments.
- The premium payments count as gross income to the employees who receive the COBRA benefits.
- Employers are required to reimburse any employee who is eligible for this benefit who makes a premium payment for the April 1, 2021 - September 30, 2021 time period.
- These changes would take precedence over any severance agreement that requires an employee to pay their own COBRA premiums for the affected time period.
- For more details, see https://www.congress.gov/117/bills/hr1319/BILLS-117hr1319enr.pdf. The COBRA provisions are in Subtitle F – Preserving Health Benefits for Workers, beginning at Sec. 9501.
The above is a broad overview to provide a heads-up on this change to COBRA premiums, and should not be relied on for any purpose. For details on how it may apply to any particular situation, contact Karen Sutherland at email@example.com or 206-447-2241.