ARPA’s COBRA Subsidy Rule

The American Rescue Plan Act of 2021 (ARPA) requires employers to subsidize 100 percent of the cost of premiums for COBRA continuation for eligible employees and their dependents from April 1, 2021 through September 30, 2021. Since ARPA was signed into law, the U.S. Department of Labor (DOL) issued additional guidance to help employers navigate the murky waters ahead. Here are the major takeaways, with one deadline quickly approaching.

Who is eligible to receive the COBRA subsidy?

Employees who are terminated (other than for cause) or who see their hours involuntarily reduced, or who voluntarily reduce their hours out of COVID-related safety concerns. Before the pandemic, eligible former employees had a 60-day election period to enroll in COBRA coverage. Under ARPA, that 60-day period will not start until the pandemic is declared over. This means that eligible former employees who declined or dropped COBRA coverage but are still within the 18-month COBRA coverage period can elect to obtain COBRA coverage and receive the subsidy during the six-month period.

Employees who quit are not eligible for the COBRA subsidy.

Who pays for the COBRA subsidy?

The employer is responsible for paying for the COBRA coverage during the six-month period specified by ARPA. In turn, the employer will receive a tax credit to apply toward the terminated employee’s payroll taxes.

What should employers do to comply with the law?

ARPA requires employers to notify their eligible employees and former employees about the change in COBRA coverage. Every employer should determine who should receive the notices, what they should say, and when they need to be delivered. Employees eligible for COBRA before April 1, 2021 must receive a notice from the employer by May 31; employees eligible after April 1 should be notified within 60 days.

Employers have to communicate about the COBRA subsidy in clear, easy-to- understand language to their eligible current and former employees. The Department of Labor has model forms available for employers to use for this very purpose.



Contact Nicole Gardner or Erin Ball if you have a question about the new COBRA subsidy or your company’s employee benefits plans.