The American Rescue Plan Act signed into law on March 11 includes an overlooked but valuable benefit for employees who have lost employment and access to a group health plan – up to six months of fully subsidized COBRA premiums. Specifically, the statute fully subsidizes all COBRA premiums from April 1, 2021 until September 30, 2021. During that six-month period, the entity to which the individual would ordinarily pay COBRA premiums (either the employer, insurer, or multiemployer plan sponsor) must pay eligible individuals’ COBRA premiums. But it may claim a tax credit to offset the additional expense.
The American Rescue Plan also provides an opportunity for individuals to retroactively elect COBRA benefits. Individuals who were COBRA-eligible due to involuntary loss of employment or involuntary reduction in work hours after November 1, 2019 and either declined or allowed their coverage to lapse will have 60 days to elect COBRA coverage. Employers are required to send notice to all such employees within 60 days informing them of their eligibility for premium assistance and the extended election coverage. Thankfully, the U.S. Department of Labor is required to issue model notices on or before April 10, 2021.
Employers should look for the DOL’s model notice so that they can meet the American Rescue Plan’s notice obligations. Additionally, employers that typically provide a lump sum reimbursement for COBRA premiums as part of their severance package would be wise to temporarily revise their severance agreements to omit the six-month period covered by the statute.