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American Rescue Plan Act — How the New COBRA Subsidy Impacts Employers

by Shannon Oswald, Jenn McCabe
April 02, 2021

Covid-19 has significantly impacted U.S. employers, employees and former employees, and the federal government has been working overtime on plans to provide aid to both employers and workers. One such plan is the American Rescue Plan Act (ARPA), which was signed into law by President Biden on March 11.

The ARPA contains a number of components, one of which is a subsidy for former employees falling under the Consolidated Omnibus Budget Reconciliation Act (COBRA). This component requires immediate action by employers who have 20 or more employees.

Highlights

Under the ARPA there is a COBRA subsidy available for individuals who lost their employment due to COVID-19 related business reasons. The plan aids those employees who were not able to afford to pay for their medical benefits after losing their jobs. The subsidy window provides for six months of additional time.


Who is eligible?

If you are an employer with 20 or more employees, your former employees and their dependents are eligible from April 1, 2021, until September 30, 2021. These former employees and their dependents are called “assistance eligible individuals” (AEIs).


What plans are subject to the subsidy?

Medical and vision plans are eligible but NOT flexible health spending accounts.


When does it apply?

The subsidy applies from April 1, 2021, through September 30, 2021.


Who is paying for the subsidy?

This program is entirely funded by the federal government. An employer can claim a tax credit against the 1.45% employment tax paid for hospital insurance.


How do I tell my employees about the subsidy?

Employers must issue a special notice to individuals and let them know that they are eligible for premium assistance. You can do this in one of two ways:

  1. Provide the notice to eligible employees within 60 days of the date of enactment (so by June 1, 2021).
  2. Your COBRA plan sponsors may amend their current COBRA election form OR include a separate document with the notice given to employees.

The Department of Labor (DOL) is expected to provide language for employers in the coming days.


If an employee was previously eligible but did not elect COBRA, are they eligible?

Yes, they can be. Each individual must be looked at separately, and they may be eligible due to their specific circumstance.


What do the former employees or AEIs have to do in order to get the subsidy?

Once they receive the notice, the former employee will contact you with their choice to enroll or not to enroll.


How long does the subsidy last?

It ends on September 30, 2021, OR on the last day of the former employee’s 18-month COBRA window if that date falls before September 30, 2021.


What does an employer need to do now?

Step 1 - Identify eligible individuals who are enrolled currently.
Step 2 - Identify eligible individuals who did not enroll but were eligible.
Step 3 - Create the notices for former employees and dependents.
Step 4 - Work with your payroll provider to capture the tax credit.

If you have questions or need help understanding and administering this plan for your employees, contact our experts.

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Authors
Shannon Oswald - Director, Consulting | Armanino
Director
Jenn McCabe - Partner, Outsource HR - El Segundo CA | Armanino
Partner
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