- Learn more about COBRA coverage.
- Discover the ins-and-outs of the federal COBRA subsidy.
- Find out what period the subsidy covers.
- Discover how the payment process works.
The recently passed American Rescue Plan Act (ARPA) includes a provision for the federal government to pick up the cost of COBRA health coverage for employees’ involuntary termination of their employment or reduction of hours subject to certain qualifications. If you’ve ever needed this kind of coverage, you understand the excitement about this. Fiducial has more information below!
What is COBRA?
COBRA is the acronym for Consolidated Omnibus Budget Reconciliation Act. The act gives workers and their families who lose their health benefits the right to choose to continue obtaining group health benefits provided by their group health plan for limited time periods, under certain circumstances such as voluntary or involuntary job loss, reduction in the hours worked, transition between jobs, death, divorce, and other life events.
Unfortunately, qualified individuals may have to pay the entire premium, for coverage, up to 102% of the cost to the plan.
COBRA generally requires that group health plans sponsored by employers with 20 or more employees in the prior year offer employees and their families a temporary extension of health coverage (called continuation coverage) in certain instances in which coverage under the plan would otherwise end.
How does the ARPA affect COBRA plans?
The ARPA provides premium assistance, a 100% federal subsidy (i.e., makes the health insurance coverage no cost to the former employee) for COBRA premiums for eligible individuals who have a COBRA option through their employment beginning April 1 and continuing through September 30, 2021. On top of that, this subsidy is also tax-free.
An individual qualified for this subsidy is one who is eligible for COBRA coverage as an employee, former employee, covered spouse, or covered dependent. They must also elect to have COBRA coverage due to involuntary termination of their employment or reduction of hours. They cannot be eligible for other group coverage or Medicare.
Individuals who do not have a COBRA election in effect on April 1, 2021, but who would be otherwise qualified for the subsidy also qualify. Also qualified are those who elected to have COBRA coverage but discontinued it before April 1, 2021, are still within their maximum coverage period and make the COBRA election during the period starting April 1, 2021 and ending 60 days after they are provided with a required notification of the extended election period by their former employer.
The duration of this subsidized coverage will begin April 1, 2021, and end on September 30, 2021, unless, under the terms of the COBRA coverage, the covered period is less, or the COBRA beneficiary becomes eligible for coverage under another group health plan or Medicare. A penalty of $250, or more for intentional failures, applies to beneficiaries who fail to notify the government that they become ineligible for the subsidy.
How does the program work?
Where the COBRA group health plan sponsors permit it, the premium assistance will apply to any compliant coverage in which the employee enrolls, provided the premium does not exceed the premium for the coverage in which the individual was enrolled and does not provide only excepted benefits or is not a qualified small employer health reimbursement arrangement or health flexible spending arrangement.
The employer, or insurer for fully insured plans, will pay for the subsidized COBRA coverage, and in turn, will be reimbursed for the cost of the coverage by the federal government through a credit claimed against its Medicare payroll tax. If the credit exceeds the tax, the difference is refundable and can be claimed in advance.
The ARPA requires employers provide notices to assistance eligible individuals of: the subsidy’s availability, the extended election period for COBRA coverage, and the subsidy’s expiration.
Have questions about your COBRA coverage? Contact your prior employer related to your benefits under COBRA coverage. Need information related to this new law change? Call Fiducial at 1-866-FIDUCIAL or make an appointment at one of our office locations to discuss your situation.
For more small business COVID-19 resources, visit Fiducial’s Coronavirus Update Center to find information on SBA loans, tax updates, the Paycheck Protection Program, paid sick and family leave, and more.