Employer Guide to ARPA’s Impact on COBRA and FFCRA

The American Rescue Plan Act of 2021 (ARPA), signed into law on March 11, 2021, includes a whole host of requirements and provisions impacting private employers, their employees, and the benefit plans they offer.

Here is a rundown of the Consolidated Omnibus Budget Reconciliation Act (COBRA) and Families First Coronavirus Response Act (FFCRA)-related changes impacting employers. 

COBRA Premium Subsidies:

A significant mandate of ARPA impacting employers and their group health plans is the requirement to offer 100% subsidized COBRA continuation coverage to eligible plan participants (defined as “assistance eligible individuals” or “AEIs”) between April 1, 2021, through September 30, 2021.  There are many nuances (and other technical requirements) associated with this mandate that necessitate quick action from employers (and their group health plans) to comply. To make matters more confusing, certain guidance and regulations are needed from federal agencies, such as the United States Department of Labor (USDOL) and the Internal Revenue Service (IRS), to better understand certain aspects of the COBRA provision of ARPA, yet that guidance is not expected until after April 1, 2021.  Nevertheless, we recommend preparing now in order to avoid likely pitfalls.

Who is an AEI

An AEI is any qualifying plan participant who loses, or has lost, health insurance coverage due to an involuntary termination (other than for gross misconduct) or a reduction in hours worked (note: ARPA does not appear to distinguish between a voluntary or involuntary reduction in hours), and who elects continuation coverage to be effective during the April 1, 2021, and September 30, 2021, timeframe.  As with COBRA eligibility in general, an AEI will lose eligibility for COBRA subsidized coverage if they become eligible for other group health insurance coverage or Medicare.  AEIs are required to notify the plan if they lose eligibility for COBRA subsidized coverage.

Who Must Provide Subsidized Coverage

Employer-sponsored health insurance plans that are subject to federal COBRA requirements or comparable state continuation programs must offer fully subsidized continuation coverage to AEIs between April 1, 2021, and September 30, 2021.  To be clear, the requirement to provide fully subsidized continuation coverage for AEIs applies to employers who are subject to COBRA, as well as small employers who are not subject to COBRA but are subject to a state law continuation law, like North Carolina’s health insurance continuation law. 

What about Reimbursement or Tax Credits?

Employers who comply and provide subsidized coverage as required by ARPA will be reimbursed through tax credits against their quarterly payroll taxes for the costs of the subsidized coverage during the six-month subsidy period. If the tax credit exceeds the payroll taxes owed, it will be treated as an overpayment and refunded to the employer.  Employers can also seek the advancement of the credit (to be treated as a refund), such as if the costs of subsidized coverage are expected to exceed the quarterly payroll taxes. Further guidance from the IRS detailing how this process will work is anticipated.

Extension of Election Period for AEIs

Significantly, ARPA lengthens the COBRA election period, and allows individuals whose COBRA election period expired prior to April 1, 2021, to elect subsidized COBRA coverage beginning April 1, 2021, so long as the individual otherwise qualifies as an AEI and remains eligible for COBRA coverage during (some or all of) the six-month subsidy period.  This special enrollment opportunity also allows AEIs who previously declined COBRA, or elected but then terminated their COBRA coverage (such as due to premium nonpayment), the ability to elect subsidized COBRA coverage beginning April 1, 2021.  Although the election period has been extended and broadened to include more individuals who may qualify for subsidized COBRA…