COBRA Changes that May Impact You

In April, 2021, the President signed the American Rescue Plan Act of 2021 (ARPA), creating a 100% COBRA premium subsidy and additional COBRA enrollment rights for certain employees (and their families) who have lost group health plan coverage due to an involuntary termination of employment or reduction of hours.

COBRA was originally signed into law in 1985 and required continuation coverage to be offered to employees, their spouses, former spouses, and dependent children when group health coverage would otherwise be lost due to certain specific events. The term of coverage normally lasts for 18 months and the covered individual bears the cost of the coverage.

ARPA provides COBRA premium assistance to help “assistance eligible individuals” (AEI) to continue with their health benefits. An AEI is a COBRA qualified beneficiary who meets the following requirements during the period from April 1 through September 30, 2021:

• Eligible for COBRA continuation coverage by reason of a qualifying event that is (1) a reduction in hours (such as reduced hours due to change in a business’s hours of operations, a change from full-time to part-time status, taking of a temporary leave of absence, or an individual’s participation in a lawful labor strike) as long as the individual remains an employee at the time that hours are reduced, or (2) an involuntary termination of employment (does not include a voluntary termination); and

• Elects COBRA continuation coverage.

An individual is not eligible for premium assistance if they are eligible for other group health coverage, such as through a new employer’s health plan or a spouse’s health plan, or Medicare or a health flexible spending arrangement.

Impacted Individuals
If you were covered by an employment-based group health plan on (1) the last day of your employment or a family member’s employment or (2) the last day before you or your family member’s reduction in hours causing a loss of coverage, the plan or issuer should provide you and your beneficiaries with a notice of your eligibility to elect COBRA continuation coverage. The notice should include any forms necessary for enrollment, including forms to indicate that you are an AEI and not eligible for another group health plan or for Medicare.

AEIs do not have to pay any of the COBRA premium for the period of coverage from April 1 through September 30, 2021. The premium is reimbursed directly to the employer, plan administrator, or insurance company through a COBRA premium assistance credit.

Business Owners
Employers can claim the credit during the six-month period on their Form 941, Employer’s Quarterly Federal Tax Return. The credit is claimed on line 13f of the form and is a refundable credit. The IRS has provided a worksheet to determine the credit. Worksheet 5 is included in the instructions to Form 941, revised 6-2021.

The credit is used first to reduce Employer’s portion of Medicare tax. Any remainder is a directly refundable tax credit.

For more information or if you have questions, please contact us.