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COBRA Changes Related to New COVID-19 Legislation

Did you know that COBRA health coverage is included in the American Rescue Plan Act (ARPA)? This change in regulation allows qualified individuals to gain coverage on or after April 1, 2021 without requiring them to pay premiums from the original loss of coverage date. Employers will need to pay the COBRA premium of effected individuals up front.

For some employers, this subsidy may cause a short-term unexpected cash flow issue, but these funds will be returned to the employer in the quarterly payroll tax return. Federal subsidies for COBRA premiums cover the entire cost of insurance and apply from April 1, 2021 to September 30, 2021. Employers are responsible for notifying eligible individuals regarding coverage under these subsidies.

Next Steps for Employers

Due to the short time frame for notices to go out, we recommend that you begin evaluating who may be eligible as soon as possible. Plan administrators will have to amend existing COBRA notices and share a separate document with forms necessary to establish eligibility. Anyone who is eligible under these new guidelines can sign up during a 60-day Special Election Period beginning April 1, 2021.

COBRA Subsidy Eligibility

Any employee or family member who is has lost coverage for:

  • Any qualifying reason between November 1, 2019, and September 31, 2021
  • Any individual who has lost coverage due to a reduction of hours
  • Any individual who loses their job from now until September 2021
  • Any previously covered individual who is still within the 18-month eligibility period
  • Any individual who did not elect COBRA when initially eligible
  • Any individual who elected COBRA but subsequently dropped it

COBRA Subsidy Termination

Subsidies stop covering individuals when they come to the end of their 18-month COBRA period or September 30, 2021, whichever happens first. They also end when the individual is able to find coverage under another group health plan or become eligible for Medicare. One thing to keep in mind, since the COBRA election deadlines were extended, many former employees are likely to be within their COBRA-election period.

Future Guidance

There are many elements of these subsidies that we are still waiting on guidance. We expect that the Department of Labor will publish model COBRA notices that cover the subsidies before April 1. We believe that the Treasury Department might permit an advance credit for employers to cause as little strain on their budget as possible during this economic crisis.

We understand how complicated this topic is and if you find you require clarification, our friends at One Digital are equipped to offer advice and support to your specific situation. Feel free to contact the Forde Firm today to get answers on this and any other accounting questions you may have.

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