Just the FAQs: The American Rescue Plan & COBRA

On March 11, 2021, Congress passed the American Rescue Plan Act (ARPA), a sweeping piece of legislation that had our phone lines buzzing. One of the tenets of the Act is to provide 100% COBRA subsidies to employees who were involuntarily terminated during the pandemic. (We are thankful that they elected a full subsidy rather than the painful 85% ARRA subsidy in 2009). As with many acts of Congress, the relative simplicity of the language soon prompted a barrage of questions relating to who is actually eligible, how the subsidy will be provided and what is covered. We’ve compiled a list of questions and answers as a result of our research:

  1. Q: Who is eligible for the ARPA COBRA subsidy?

A: Any participant (and their qualified dependents) who was involuntarily terminated or suffered a reduction of hours since October, 2019 is considered to be an Assistance Eligible Individual (AEI) and is eligible for the subsidy.

  1. Q: How do I determine if an employee was voluntarily or involuntarily terminated? 

A: Unfortunately, the ARPA does not define involuntary termination.  If “laid off or fired” doesn’t apply, perhaps looking back to the 2009 ARRA subsidy definition might help. ARRA defined a involuntary termination as “A severance from employment due to the independent exercise of the unilateral authority of the employer to terminate the employment, other than due to the employee’s implicit or explicit request, where the employee was willing and able to continue performing services.”  The 2009 subsidy notice adds, “The determination of whether a termination is involuntary is based on all the facts and circumstances.  For example, if a termination is designated as voluntary or as a resignation, but the facts and circumstances indicate that, absent such voluntary termination, the employer would have terminated the employee’s services, and that the employee had knowledge that the employee would be terminated, the termination is involuntary.”

  1. Q: How do I let SBA know of involuntarily terminated employees or those with a reduction of hours?

A: We will send you a report for review and ask you to identify each individual we are to mail the ARPA Subsidy notice. We hope to have these reports emailed within the next week or so. Several clients have already received our report and returned the completed report. Give us time to accomplish this huge task as we have over 650 clients to email.

  1. Q: How long will the ARPA subsidy last? 

A: From April 1, 2021 to September 30, 2021

  1. Q: What specific COBRA benefits are eligible to receive subsidy assistance?

A: All group medical, dental, vision, EAP and HRA benefits.  Benefits not eligible for the subsidy are:

  • >Health Flexible Spending Accounts
  • >Qualified Small Employer Health Reimbursement Arrangements (QSEHRA)

  1. Q: How will employers be “reimbursed” by the government for the 102% subsidy of the COBRA premiums under this Act? 

A: You will deduct the 102% amount you have paid for these individuals from your IRS 941 form. With ARRA in 2009, the 941 forms were modified to include space for the credit. We expect the same modification on the 2021 941 forms. In essence, you will short pay your payroll taxes.

  1. Q: What if the amount I paid for COBRA premiums exceeds my 941 taxes owed?

A: You will receive a refund for overpayment.

  1. Q: What about people currently enrolled in COBRA, are they eligible for the subsidy?

A: If they experienced an involuntary termination or reduction of hours then they are eligible for the subsidy.

  1. Q: What about people who experienced other COBRA qualifying events such as voluntary termination, divorce, legal separation, death of employee, loss of dependent status, are they eligible for the subsidy?

A: No

  1. Q: What if a person never elected COBRA when they were offered it all the way back to November 1, 2019, can they have a gap in coverage and still sign up for this free COBRA subsidy?

A: Yes

  1. Q: Is there any way a person can lose this subsidy coverage?

A: Yes. There are several ways the subsidy can be lost:

  • >If they reach Medicare eligibility age, COBRA will end the first of their Medicare-eligibility birthday month. 
  • >Participants who reach the end of their 18 or 29 months of COBRA eligibility will terminate COBRA and lose the subsidy. 
  • >Individuals who become eligible for another group medical plan will be terminated from COBRA and lose the subsidy at that time.

  1. Q: Is this subsidy also available to the dependents who were covered on benefits at the time of the termination or reduction of hours?

A: Yes.  It is possible for only the spouse or only the child to elect COBRA and receive the subsidy because they experienced an involuntary loss of coverage due to the termination of the spouse/parent.

  1. Q: Can someone who had employee-only coverage at the time of termination or reduction of hours enroll new dependents who will also be covered by the subsidy?

A: No, new dependents did not experience an involuntary loss of benefits due to the qualifying event so they should not be Assistance Eligible Individuals.

  1. Q: If an employer offers more than one medical plan, can an Assistance Eligible Individual pick a different medical plan than the one they had at the time of termination?

A: It is the employer’s choice to say yes or no to this request.  If yes, an AEI can switch plans as long as the plan is not more expensive than they plan they were enrolled in at the time of termination or reduction of hours.

  1. Q: If someone is enrolled in COBRA and receiving the subsidy and then becomes eligible for other group medical coverage, how will I know?

A: It is the responsibility of that participant to notify you they are no longer eligible for the subsidy. A subsidy recipient’s failure to provide timely notice to either you or SBA of their loss of eligibility is subject to a penalty of $250 for each failure. That said, they can stay on your plan as a COBRA participant if they prefer your richer coverage over the other group medical coverage they have become eligible for, but they must stop receiving the 102% subsidy and must begin paying 102% of the COBRA premium at that time.

  1. Q: When will the Department of Labor release the ARPA Subsidy Notices and when will SBA mail them?

A: The DOL has a deadline of April 24, 2021 to release the notice (45 days after the Act was passed on March 11, 2021). We plan on mailing them soon after we have that notice available.

  1. Q: Are you going to charge anything additional for all this work?

A: I’m glad you asked!  Yes, this ARPA subsidy requirement has caused us to examine the amount of labor, paper, toner, envelopes, stamps and proof of postage involved and we have determined it to be outside of the COBRA Service Agreement we have to provide “normal” COBRA service to our clients.  Therefore, we have decided to charge our clients the following:

  • >$6.00 x the number of ARPA Subsidy Notices mailed.
  • >$15 for each new COBRA enrollment for an Assistance Eligible Individual who did not elect COBRA long ago but is >suddenly electing COBRA Starting April 1.  
  • >We will not charge any fee to those who enroll in COBRA because they terminated in March 2021 (this would fall under our normal COBRA services).
  • >We are going to invoice clients for the 2% COBRA admin fee each month. We would normally collect this from the COBRA participant but since you (the employer) are receiving a payroll tax credit for the 102% then we feel justified billing you for it. You are reimbursed the insurance premium and we are reimbursed the rightful COBRA admin fee as allowed by the Act.

We fully expect there will be more questions as the notices are released and the process begins. We’ll keep you updated as we learn more.



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