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Legal Alert: COBRA Subsidies and COVID-19: Who Gets the Credit?

The United States Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) enables qualified beneficiaries who lose health benefits due to a qualifying event to continue group health benefits.

The American Rescue Plan Act of 2021 (ARPA) provides for a 100% COBRA premium subsidy for individuals who were involuntarily terminated or whose hours were reduced and who enroll in COBRA coverage from April 1, 2021 to September 30th of 2021. The subsidy is not available for:

  • individuals who voluntarily terminate employment (i.e., they quit or resign),
  • involuntarily terminated employees (or employees whose hours are reduced – voluntarily or involuntarily) who:
    • are eligible for or become eligible for other group coverage (other than excepted benefits)
    • are eligible for or become eligible for Medicare
    • reach their maximum coverage period.

The employer pays the premium and recoups the money through a refundable tax credit against the taxpayer’s (employer’s) Medicare tax.

For fully insured group health plans subject to COBRA (20 or more employees), the employer receives the credit.
For self-funded group health plans (any size) the employer receives the credit.
For fully insured group health plans sponsored by employers with less than 20 employees and subject to state continuation/mini-COBRA, the insurer receives the credit.
For coverage under a multiemployer/union plan, the plan receives the credit.

Early versions of the ARPA legislation contained language suggesting that insurance carriers (for employers of any size with fully insured plans) would receive that credit. This led to speculation that employers would have to negotiate with the carrier to receive credits for the premiums they paid on behalf of employees and former employees on COBRA. This is no longer the case based on the final language of ARPA.

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The information contained herein should be understood to be general insurance brokerage information only and does not constitute advice for any particular situation or fact pattern and cannot be relied upon as such. Statements concerning financial, regulatory or legal matters are based on general observations as an insurance broker and may not be relied upon as financial, regulatory or legal advice. This document is owned by Alera Group, Inc., and its contents may not be reproduced, in whole or in part, without the written permission of Alera Group, Inc. This document was last updated 3/23/2021.

 

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