Sarah Borders, CEBS March 12, 2021 5 min read

100% COBRA Subsidies Under American Rescue Plan Act

On March 11, 2021, the President signed into law the American Rescue Plan Act (ARPA) H.R.1319.

Under the latest stimulus legislation, eligible COBRA participants will be able to receive a temporary 100% subsidy for their COBRA premiums where the qualifying event was involuntary termination or reduction in hours (was previously an 85% subsidy, but subsequently increased in the Senate version). It is not, however, available for employees whose termination of employment is voluntary.

The subsidy will be provided by the federal government via payroll tax credits for employers, which will last a total of 6 months, beginning on April 1, 2021, and ending on September 30, 2021.  The assistance may end sooner if the qualified beneficiary’s maximum COBRA coverage period ends or if the participant is eligible for another group health plan or Medicare.

As is normally the case, individuals must notify the former employer if they become eligible for other group coverage or Medicare.  However, unlike normal COBRA procedures, ARPA imposes a penalty of $250 if the individual fails to provide notice of eligibility for other group or Medicare coverage. If the failure to notify is found to be intentional, the penalty is the greater of $250 or 110% of the subsidy amount.

Subsidy-eligible participants do not pay COBRA premiums, but instead the premiums are paid by the self-funded or fully insured employer and then reimbursed by application to the federal government for a tax credit.

ARPA also gives enrollment opportunities for individuals who’ve already experienced an involuntary termination of employment or reduction in hours within the last 18 months and did not timely elect COBRA or dropped COBRA. These individuals will have a new 60-day election window following the date that they receive a new required COBRA notice. In addition, employers may allow subsidy-eligible qualified beneficiaries to change elections to other plan options that have the same or lower-cost premiums (optional).

Employers must provide a revised COBRA notice to all individuals who may be eligible for the subsidy. This will require employers to amend their current COBRA notice and election forms. In addition, employers will need to provide notices to eligible workers who haven’t elected COBRA by April 1, and those who elected COBRA coverage but then later dropped it. Those former employees may elect COBRA coverage during an enrollment period starting April 1 and ending 60 days after the date on which the notice regarding the subsidy was delivered. Also, employers must provide a notice of expiration before the premium subsidy expires. Failure to provide the notice is treated as a failure of the COBRA notice requirements. 

To assist employers, new model COBRA notices will be issued by the Department of Labor within 30 days after ARPA is enacted into law.

Lastly, ARPA increases the dependent care FSA limit for 2021 from $5,000 to $10,500 (married filing jointly). An employer may amend the cafeteria plan retroactively to adopt the increased amount, as long as the plan document is amended by the end of the plan year. If the dependent care plan tends to fail non-discrimination testing annually, employers will want to carefully consider whether or not to raise the limit.  If raising the limit, additional non-discrimination tests may be needed to ensure members receive tax-favored status.  

While there are many complex provisions in this nearly $2 trillion relief bill, we are here to help employers make sense of everything. Reach out with questions about how this new bill may affect your organization.


Sarah Borders, CEBS

Principal, Benefits Compliance Solutions. Sarah has spent the last 15 years in the employee benefits industry, has numerous designations and serves on NAHU’s Employer Working Group Subcommittee and is an active board member of Austin AHU. She recently stepped down as Vice President of Benefits Compliance at one of the nation's largest brokerage firms to start her own compliance consulting practice. Her designations include an active license with the Texas Department of Insurance, CEBS (Certified Employee Benefits Specialist), Certified Health Care Reform Professional, HIPAA certification and Health Care Service Associate. She holds an MBA from Texas A&M Corpus Christi and a BA from University of Incarnate Word. Her consulting firm, Benefits Compliance Solutions, partners with employers to identify unknown risks and avoid hundreds of thousands of dollars in fines and lawsuits from failure to comply with their healthplan obligations.