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ARP COBRA Subsidy

The most significant benefits-related provision in ARP creates a federal subsidy that will cover 100% of COBRA premiums for certain Qualified Beneficiaries (QBs) who have federal or state continuation of coverage rights following an involuntary termination of employment or reduction in hours. The QBs will pay nothing. The employer will pay the full premium due to the carrier or cover QBs at no cost on a self-insured plan. Employers will then recover the premiums through a payroll tax credit. There are also significant new notice requirements.

Individuals who previously experienced an involuntary termination, or reduction in hours, but did not elect COBRA, or those who elected and have subsequently dropped COBRA coverage, and who are still within their COBRA maximum coverage period, must be given a second chance to elect COBRA to take advantage of the subsidy. If such individuals elect COBRA coverage within 60 days of being notified of the subsidy opportunity, coverage would be provided prospectively from the second election date, not retroactively to the original COBRA event date. There could be a lapse in coverage between the original COBRA event and the new special second election. Employers cannot force the QB to pay back premiums to take advantage of this second election opportunity. In no case is an individual eligible for more than the COBRA maximum coverage period measured from the original event date.
Individuals who previously experienced an involuntary termination, or reduction in hours, but did not elect COBRA, or those who elected and have subsequently dropped COBRA coverage, and who are still within their COBRA maximum coverage period, must be given a second chance to elect COBRA to take advantage of the subsidy. If such individuals elect COBRA coverage within 60 days of being notified of the subsidy opportunity, coverage would be provided prospectively from the second election date, not retroactively to the original COBRA event date. There could be a lapse in coverage between the original COBRA event and the new special second election. Employers cannot force the QB to pay back premiums to take advantage of this second election opportunity. In no case is an individual eligible for more than the COBRA maximum coverage period measured from the original event date.
Employers will recover premiums not paid by COBRA QBs through a payroll tax credit, similar to the manner in which employers recovered mandatory Families First Coronavirus Response Act (FFCRA) paid leave costs. If the tax credit exceeds the amount of payroll taxes due for a particular period, the employer can apply for a refundable tax credit. In most cases, however, the employer will have more payroll taxes due for any particular period than the amount of credit they can claim for lost COBRA premiums.
Existing COBRA election notices will need to be updated or supplemented with new language describing the subsidy. The rules include specific information that will need to be included in all COBRA election notices. There is also a new special notice that employers must send to any individuals who experienced a COBRA event due to an involuntary termination or reduction in hours and who are still within their 18-month maximum COBRA period. This notice informs these individuals of their right for a second chance at electing COBRA coverage. The special notice must be sent to eligible individuals no later than May 31, 2021 (60 days after the date the subsidy goes into effect). Additionally, a notice must be sent to anyone receiving the subsidy informing them when the subsidy is about to end. This notice must be sent between 15 – 45 days prior to the expiration of the subsidy.

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