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The American Rescue Plan Act and COBRA Subsidies: What Employers Need to Know

A pandemic is probably the last event during which anyone wants to lose their health insurance. But unfortunately, due to major shake-ups in employment over the past year, that’s exactly what happened to many Americans. If you lost health insurance due to job loss, or other reasons, you have the option to continue your coverage under COBRA provisions.

In the past, COBRA coverage was theoretically possible, but not always practical. That’s because the premiums can run fairly high, especially for those who lose their healthcare plans due to job loss. But due to the challenges posed by the pandemic, the American Rescue Plan Act includes provisions to help the uninsured continue their healthcare coverage through COBRA.

As of April 1, and continuing through September 30, group health plans that provide COBRA coverage must also offer a 100 percent COBRA subsidy for “assistance eligible individuals” and their qualified beneficiaries.

This subsidy applies to major medical plans, along with dental and vision plans, but does not apply to health flexible spending accounts.

Who is “assistance eligible”?

Individuals who qualify for COBRA due to involuntary termination or a reduction in hours should be eligible for the 100 percent subsidy.

Those employees who voluntarily terminated employment, or are eligible for COBRA for some other reason, will not be able to claim the subsidy.

Those who would have been eligible for the COBRA subsidy in the past 18 months, but did not elect the coverage, might also be eligible to enroll and get help with premiums.

Premiums are advanced by the employer or the insurer and are reimbursed by the federal government via a payroll tax credit. This should save the insured individual some time and hassle, allowing easy enrollment for those who qualify and wish to do so. However, employers must be aware of and prepared for being responsible for these premiums. Since federal reimbursement comes in the form of a payroll tax credit, there will be a waiting period before employers will recoup the premiums.

If you have questions about this new legislation or your responsibilities as an employer, contact us right away. The program began on April 1 and will last through September if it is not renewed.

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