American Rescue Plan Act – COBRA subsidy

by Joseph P. Kelly

Yesterday, Joe Biden signed the American Rescue Plan Act of 2021 which includes a 100% COBRA premium subsidy that will require immediate employer action.

The COBRA subsidy–which applies to all group health plans, except for flexible spending account coverage–will be available to all individuals enrolled or that will enroll in COBRA on or after April 1, 2021 and until September 30, 2021 when the subsidy ends.

What employers need to know:

Eligible individuals will receive the subsidy directly from the employer; the employer will be required pay the COBRA premiums and then will receive a payroll tax credit to recoup the subsidy cost.

Employers are required to either update their current COBRA notices or provide a separate notice describing the premium subsidy. The Department of Labor is required under the new law to provide model notices within 30 days. But affected employers shouldn’t wait for the model notices; instead they should work with their COBRA administrators to see if there are any individuals eligible for the subsidy–including former employees that may or may not have elected COBRA coverage. Failure to provide the required notice may result in a tax penalty.

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