New Law Mandates Employers Pay COBRA Benefits

On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 (the “Act”) into law.  The Act mandates that employers provide 100% of an eligible employee’s cost of continuing group health coverage under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) for the period of April 1, 2021 through September 30, 2021.

Employers that pay such COBRA continuation coverage will receive tax credits from the federal government.

What employers are required to offer COBRA premium assistance?

All private-sector employers or employee organizations subject to either COBRA rules or state and local laws mandating continuation of health insurance are required to offer COBRA premium assistance.

In general, COBRA applies to all private-sector group health plans that had at least 20 employees on more than 50% of its typical business days in the previous calendar year.  Part-time employees count as a fraction of a full-time employee based on the number of hours worked divided by the hours an employee must work to be considered full time.

What employees are eligible for COBRA coverage?

Under the Act, employees that were covered by a group health plan and have been terminated or had their hours reduced are eligible to receive the subsidy, if they elect such coverage.  Additionally, such employee’s spouse and dependent children also qualify for coverage.

However, employees who voluntarily terminate employment or reduce their hours are not eligible for COBRA continuation coverage.  Additionally, individuals who are covered by Medicare or another group health plan, such as a plan offered by a new employer or a spouse’s employer, are also not eligible.  If an individual receiving COBRA continuation coverage becomes eligible for coverage under another plan, the individual must notify the plan under which COBRA continuation coverage is being provided.

The Act allows those individuals whose COBRA election period expired before April 1, 2021, to elect for the subsidized COBRA coverage so long as they are still within the required period under the applicable COBRA provisions, which is typically eighteen (18) months.