Employees get a six-month holiday from COBRA premiums

Thanks to the American Rescue Plan Act

Posted March 19, 2021 

The American Rescue Plan Act (ARPA) includes many provisions employers need to be aware of, and one of them is that employees will generally not need to pay COBRA premiums from April 1 through September 30, 2021. Think of it as a “holiday.”

In addition to the premium benefit, employees also have the option to enroll in different coverage and may take up to 60 days to enroll in COBRA continuing coverage.

Who is eligible?

To partake in the holiday, employees need to be eligible for COBRA continuation coverage because of a usual qualifying reason and elect the coverage. This holiday will not, however, apply to situations involving voluntary termination. Employees who are terminated for cause would not generally be eligible for COBRA, so they would not be eligible for the premium holiday.

Usually, employees (or their dependents) may be required to pay the full premium and up to a two percent administrative fee. Under the ARPA, the employer, insurer, or multiemployer plan sponsor must pay eligible employees’ COBRA premiums but may offset the cost by claiming a new federal tax credit.

Since COBRA applies to group health plans, this new provision will, as well, but it does not apply to flexible spending accounts.

What are key dates?

The holiday can apply to employers (or dependents) who lost coverage before April 1, 2021, as well as those who lose coverage on or after that date.

Anyone who qualified for COBRA because of an involuntary termination or reduction in hours with a coverage period that would have extended beyond April 1, 2021, may elect coverage, and take advantage of the holiday.

The ARPA does not extend the COBRA coverage period. If, for example, Emma Employee loses coverage on June 1, 2021 and would be entitled to up to 18 hours of COBRA coverage, she would have the premium holiday only until September 30, and would have the COBRA coverage through December 1, 2022.

What notices are needed?

Employers must provide revised COBRA notices and give them to certain COBRA-eligible workers, current COBRA recipients, and their dependents. Model notices are expected from the U.S. Department of Labor.

The initial notices must be given to employees no later than May 31, 2021. Employers must provide notice to between 15 and 45 days before the holiday ends, unless the individual obtains other group health plan coverage.

The bottom line

Changes to COBRA will require employers to act fairly quickly to allow employees to have COBRA coverage without charging employees any premiums from April 1 through September 30, 2021.

This article was written by Darlene Clabault of J. J. Keller & Associates, Inc.

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