Under the new American Rescue Plan Act (ARPA), starting April 1, 2021 the federal government will pay 100 percent of COBRA insurance premiums for eligible employees who lost their jobs and for their covered relatives through September 2021, allowing them to stay on their company-sponsored health plan. Employers will obtain the subsidy through a payroll tax credit against employers' quarterly taxes and will be responsible for paying health insurance carriers for the premiums. Both fully insured and self-insured group health plans subject to federal COBRA are eligible for the credit against their Medicare FICA payroll taxes and must provide the COBRA premium subsidy to assistance eligible individuals (AEIs) who have elected COBRA coverage.
If the credit exceeds the amount of payroll taxes due from employers, the credit would be refundable when employers submit Form 941, their quarterly tax return. The credit could also be advanced under rules that will be issued by the Treasury Department.
The U.S. Department of Labor (DOL) has posted on its website guidance and model notices to help employers comply with the new federal COBRA premium subsidy. The guidance explains that the COBRA premium subsidy is available to employees who lost employer-subsidized group coverage because they involuntarily had their working hours reduced (such as reduced hours due to change in a business's hours of operations) or involuntarily had their employment ended. It is noteworthy that the reduction in hours or the job loss need not be directly caused by the COVID-19 pandemic. The subsidy also applies to similar state continuation of coverage programs for eligible persons, often referred to as “mini-COBRA” laws.
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