American Rescue Plan Act of 2021 Provides Temporary Free COBRA Coverage for Certain Employees Affected by COVID-19

Employers have new COBRA obligations under The American Rescue Plan Act of 2021 (the “Act”)(Section 9501).[1]  The Act provides in part that, commencing as of April 1, 2021 and ending September 30, 2021, eligible individuals’ COBRA continuation premiums are subsidized and free.

By May 30, 2021 Employers Required to Give COBRA Notice

By May 30, 2021, employers are required to give COBRA notice to “assistance eligible individuals” that includes, among other things, notice of the availability of the subsidized premiums. The Act provides that the Departments of Labor, and Health and Human Services will develop COBRA notice form models by mid-April.

American Rescue Plan Act “Assistance Eligible Individual”

An “assistance eligible individual” is (A) an individual who is eligible for COBRA continuation coverage due to an involuntary termination or reduction in hours (for example, there is no subsidy for a voluntary termination of employment, or for other COBRA events such as a dependent aging out of coverage); and (B) such eligibility event occurred during the subsidy period, or prior to the subsidy period if within the 18 to 36-month COBRA coverage window. Assistance eligible individuals include those who did not initially elect COBRA coverage, or who elected and then dropped COBRA coverage.

How is the Free Premium Subsidized?

The free premium is subsidized by allowing the person or entity to whom premiums are payable for continuation coverage to take a credit against certain taxes in an amount equal to the premiums not paid by the assistance eligible individuals for such coverage. The “person to whom premiums are payable” is: (1) in the case of a multiemployer plan, the plan, (2) in the case of another group health plan where some or all of the coverage is not provided by insurance, the employer maintaining the plan, and (3) in all other cases, the insurer providing the coverage under the group health plan. Where an employee has already paid a premium covered by this provision of the Act, the employee is to be reimbursed.

[1] Text – H.R.1319 – 117th Congress (2021-2022): American Rescue Plan Act of 2021 | | Library of Congress

John H. Prorok
John H. Prorok

John Prorok is a highly regarded Human Resources lawyer offering clients tailored solutions. He regularly advises employers on compliance issues regarding employment laws and regulations.