American Rescue Plan Act Provides 100 Percent COBRA Subsidy

President Biden has signed into law the American Rescue Plan Act (ARPA), which includes wide-ranging relief provisions to assist those who lost their company-sponsored health plans because of the COVID-19 pandemic.

Under existing federal and state COBRA laws, most employers who offer group health plans must provide continuation of coverage for up to 18 months following a certain qualifying event, such as a termination of employment.

The ARPA includes a government subsidy to cover 100 percent of COBRA premiums for those losing group health plan coverage due to an involuntary job loss or reduction in hours. Employees who voluntarily end employment are not eligible for this benefit. The subsidy extends from April 1, 2021 to September 30, 2021(subject to otherwise applicable maximum periods of coverage under COBRA), allowing eligible employees and their dependents to stay on a company-sponsored health plan.

Should an employee become eligible for coverage under another group health plan or Medicare, they will no longer qualify for the COBRA subsidy under the ARPA. In addition, these individuals must notify their group health plan or be subject to a financial penalty.

In addition, the ARPA creates a special election period for any qualified employee or beneficiary who declined to elect federal COBRA continuation coverage, as well as for those who discontinued their federal COBRA continuation coverage prior to April 1, 2021. These individuals may now elect COBRA coverage within 60 days of receiving the required employer notice.

The ARPA also allows employers to provide terminated employees the option to elect a different company-sponsored health plan up to 90 days following receipt of a COBRA notice. Among other restrictions, the premium for the alternative coverage choice cannot be higher than the premium for the plan in which the employee was previously enrolled.

Individuals who elect COBRA coverage are not required to pay a COBRA premium during the period of coverage. For self-insured plans, the COBRA premium is covered by the employer and reimbursed through a payroll tax credit. For fully-insured plans, the tax credit may be claimed by the insurer.

The ARPA holds the Department of Labor responsible for issuing regulations and guidance regarding administration of the COBRA subsidy provisions. This includes providing a model election notice within 30 days of its enactment (March 11, 2021) and a model premium subsidy expiration notice within 45 days of its enactment.

For example, COBRA election notices must include information about the availability of subsidies and, if offered, the ability to change plan options.

Specific content requirements include:

• Forms to establish eligibility for subsidy
• Contact information for the employer/person who can provide additional assistance and information
• Description of the extended election period
• Description of the individual’s obligation to notify the plan of a loss of eligibility for the subsidy, and the penalty for failure to do so
• Prominently displayed description of the right to the subsidy and the conditions to qualify
• If applicable, information about the opportunity to enroll in a different plan option

In anticipation of the COBRA subsidy’s April 1, 2021 effective date, employers should begin gathering the names of those who will be eligible for this relief measure. This generally includes individuals who could have elected COBRA coverage as far back as November 2019, as their 18 months of coverage would extend through April 2021.

To ease administrative burdens, many employers outsource COBRA administration to a third-party administrator that manages election changes, notice requirements and billing. However, employers are ultimately responsible for compliance and identifying who may be eligible for the new subsidy.


Pacific Federal is a Zenith American company and subsidiary of Harbour Benefit Holdings, Inc.