COBRA and American Rescue Plan Act and Premium Tax Credits
American Rescue Plan Act of 2021 (ARPA) includes provision for a COBRA continuation coverage premium subsidy for individuals and families who experienced a loss in coverage due to select circumstances, like involuntary job loss or reduction of hours.
- Regulatory and compliance
- All States
On March 11, 2021, the American Rescue Plan Act of 2021 (ARPA) was signed by President Biden and includes a provision for a COBRA continuation coverage premium subsidy of 100% for individuals and families who experienced involuntary job loss or a reduction in hours of work leading to a loss in coverage.
This subsidy will be available for assistance eligible individuals (AEIs), as defined under the Act, from April 1, 2021 through September 30, 2021. Individuals who qualify may sign up with their former employer, who will be reimbursed through tax credits for the complete premium for the months the eligible individual is covered between April 1 through September 30, 2021.
The following requirements apply for federal COBRA eligible individuals*:
- Coverage was lost due to involuntary job loss or a reduction in hours of work.
- The COBRA participant is still within the COBRA eligibility period as of April 1, 2021 or elected COBRA and discontinued it prior to April 1, 2021.
- The COBRA qualified individual is not eligible for coverage under another group plan or Medicare.
- Eligible COBRA participants who do not have an election in place but are eligible will have the opportunity to elect coverage and take advantage of subsidy.
- The ARPA will not extend the normal 18-month period of COBRA continuation coverage in the case of job loss or a reduction in hours.
*Important: State continuation laws vary from state to state. Assistance eligible individuals may receive subsidized coverage from April 1 – Sept. 30, 2021.
How the advance premium works
|Plan Type||Advances Premium for COBRA Assistance Eligible Individual||Government Tax Credit for Premium Advanced|
|Multiemployer/Taft Hartley||Awaiting additional clarification from the Treasury||Awaiting additional clarification from the Treasury|
|Fully insured and self-funded group plans subject to Federal COBRA||The employer advances the premium||The employer takes the tax credit|
|Fully insured group plans subject to state continuation law, but not subject to federal COBRA||The insurer advances the premium||The insurer takes the tax credit|
|Small self-funded employer group plans (All Savers/Level Funded) are not eligible for the subsidy per federal and state laws||N/A||N/A|
Summary of COBRA Subsidy Tax Credit
The American Rescue Plan Act states
- If the plan is fully insured or self-funded and subject to federal COBRA, the employer gets the tax credit.
- If the plan is a small self-funded group plan, the subsidy does not apply.
- If the plan is fully insured and state continuation applies, the insurer takes the tax credit.
Note: We will update the communication when Multiemployer/Taft Hartley guidance is released. Additionally, employers are permitted but not required to allow assistance-eligible individuals to change elections to other plan options that have the same or lower cost premiums.
Employers are required to update COBRA notices sent to the assistance eligible individuals to describe the subsidy. For federal COBRA an extended election notice will be sent within 60 days after the April 1, 2021 applicability date. Employers must also provide a notice of expiration before the premium subsidy expires.
Support for the employer groups UHCBS administers
For employers that have UnitedHealthcare administering COBRA, UHCBS will incorporate the language into the standard COBRA Election Notices through September 30, 2021.
Upon request, UHCBS will provide the employers a list of individuals who had a qualifying event and are still within their period of eligibility. We will need the employer to inform UHCBS which of the individuals had an involuntary termination or loss of coverage due to reduction of hours. This information is needed for the individual to be eligible for the federal subsidy. The employer is required to certify that this information is accurate and agree to contact the COBRA administrator if information changes.
Additional guidance may be coming from the DOL, HHS and Treasury, which could result in changes and we will keep you informed.
Please contact your broker or UnitedHealthcare representative with questions.