The Consolidated Omnibus Budget Reconciliation Act (COBRA) recently gained attention in the business community due to provisions in the American Rescue Plan Act (ARPA) creating COBRA subsidies. Here’s what you need to know about the program enhancements and how they impact your business.
What is COBRA?
If you’re not already familiar, COBRA is a health insurance program that provides a temporary continuation of group health insurance coverage that would otherwise be lost due to certain life events.
Employer COBRA Eligibility
Generally, COBRA applies to all private-sector group health plans for employers with at least 20 employees on more than 50% of its typical business days in the previous calendar year.
Both full- and part-time employees are included in a business’ employee count, with each part-time employee counting as a fraction of a full-time employee based on their number of hours worked divided by the hours an employee must work to be considered full-time.
COBRA also applies to plans sponsored by state and local governments. However, it does not apply to plans sponsored by the federal government or by churches and certain church-related organizations.
COBRA Costs
Traditionally, employers may require individuals to pay for their COBRA continuation coverage. These premiums cannot exceed the full cost of coverage, plus a 2% administration charge.
Top Tip: Find more information on COBRA Continuation Health Coverage here.
COBRA Subsidies Under ARPA
ARPA recognized that due to the COVID-19 pandemic, an increased number of employees and families may lose health coverage from reduced work hours or job loss. While under COBRA they could elect to continue coverage, the high premium cost would likely make it difficult to afford.
Involuntary Work Reduction or Termination
As a result, ARPA created a 100% COBRA subsidy if the employee’s work reduction or termination was involuntary. The subsidy applies for up to six months of coverage from April 2021 through September 2021 (unless the individual’s maximum COBRA period expires earlier).
For group plans subject to the federal COBRA rules, the employer would be required to pay the COBRA premium and then be reimbursed through a refundable payroll tax credit.
Small Businesses (1-20 employees)
Employers with fewer than 20 workers are usually exempt from federal COBRA rules. However, their group medical insurance plans may be subject to a state’s mini-COBRA law. (If you’re unsure, check with your carrier to find out!)
In that case, it appears the subsidy will be administered by the carrier. After the carrier pays the premium, the government will provide reimbursement.
Top Tip: Find more information on COBRA and the American Rescue Plan Act (ARPA) here.
ARPA COBRA Notices
The Department of Labor (DOL) has released sample notices employers may use to meet their obligations related to the COBRA subsidy available through the American Rescue Plan Act (ARPA) of 2021:
- Model General Notice and COBRA Continuation Coverage Election Notice
- Spanish Notice: Available here.
- What’s it for? Group health plans for qualified beneficiaries who have qualifying events occurring from April 1, 2021 through September 30, 2021.
- Model Notice in Connection with Extended Election Period
- Spanish Notice: Available here.
- What’s it for? Group health plans for qualified beneficiaries currently enrolled in COBRA continuation coverage, due to a reduction in hours or involuntary termination (Assistance Eligible Individuals). Employers should also provide this to individuals who would currently be Assistance Eligible Individuals if they had elected and/or maintained COBRA continuation coverage.
- Model Alternative Notice
- Spanish Notice: Available here.
- What’s it for? Insured coverage subject to state continuation requirements between April 1, 2021 and September 30, 2021. Employers should check with their insurance carriers on the process to be used for state continuation coverage (“mini-COBRA”).
- Model Notice of Expiration of Premium Assistance
- Spanish Notice: Available here.
- What’s it for? Group health plans to Assistance Eligible Individuals 15-45 days before their premium assistance expires.
- Summary of COBRA Premium Assistance Provisions under the American Rescue Plan Act of 2021
- Spanish Notice: Available here.
- What’s it for? This should be included and sent with each copy of the Model General/Election Notice, Notice in Connection with Extended Election Period, and Model Alternative Notice (above).
Let’s Talk
We hope you found this article helpful in better understanding COBRA, program subsidies under ARPA, and what you need to communicate to your employees. Be sure to save and print out the notices above to distribute to your eligible employees.
If you have additional questions on the American Rescue Plan Act (ARPA) or COBRA, feel free to reach out to our HR Team. No matter your situation, SDP has layers of HR support that can help. Lastly, don’t forget to follow us on Facebook, Twitter, and LinkedIn for even more business tips & news!