Eligibility for the COBRA subsidy

Employees who lose (or have already lost) their health coverage due to job loss or reduction in hours would be eligible for this subsidy, as are family members who also lose (or lost) coverage along with the employee. However, the subsidy would not be available if the employee voluntarily terminates employment.

The temporary subsidy would be available to any such employee (or family member) who:

• Is enrolled in COBRA, or becomes eligible for COBRA, on or after April 1, 2021, and before the subsidy ends on September 30, 2021
• Became eligible for COBRA prior to April 1, 2021, and the period of COBRA coverage to which they would be entitled (18 months) includes any month between April and September of 2021 —  even if the individual did not elect COBRA when it was initially offered or elected COBRA but discontinued it before April 1, 2021

Amount of the subsidy

During the six-month period from April through September of 2021, the individual would be required to pay 15 percent of the monthly COBRA premium and the federal government would pay 85 percent.

How long the subsidy would last

The subsidy would last for six months at most. The subsidy would end earlier if the individual’s maximum period of COBRA coverage (generally, 18 months) ends earlier than September 2021. It would also end earlier if the individual becomes eligible for coverage under another group health plan or Medicare. Individuals would be required to notify their group health plan if they become eligible for such coverage and would be subject to penalty if they fail to do so.

Eligibility for excepted benefits, such as limited-scope dental or vision coverage or a health flexible spending arrangement, would not terminate subsidy eligibility.

New notice requirements for group health plans

The legislation would require group health plans to provide a notice about the availability of the new subsidy to any individual who becomes eligible to elect COBRA between April 1, 2021 and September 30, 2021. They would also have to provide the notice to individuals who would be eligible for the subsidy due to job loss or reduction of hours followed by a loss of coverage occurring before April 1, 2021.

The federal government would be required to issue model notices within 30 days of enactment.

Plans would also be required to notify individuals if their subsidy will terminate before September 30, 2021. This notice would not be required if the subsidy will terminate due to the individual’s eligibility for other coverage.

The federal government would be required to issue a model for this notice within 45 days of enactment.

Payment of the subsidy

The subsidy would be paid to the plan or plan sponsor as a credit against quarterly payroll taxes. Multiemployer plans and governmental plans are eligible to receive the credit. If the credit exceeds the amount of payroll taxes due, the credit would be refundable. It could also be advanced under rules that would be set by the Treasury Department.

Implications for group health plans

In anticipation of this subsidy becoming federal law, plan administrators should start identifying the individuals who will need to receive a notice about the new subsidy. This means identifying any eligible individual described above who would be eligible for the subsidy for at least one month. Generally, this means anyone who had — or could have had — COBRA as far back as November 2019, because their 18 months of coverage would extend through April 2021.

In addition to providing the required notices, plan sponsors of group health plans should also consider whether they will permit individuals to enroll in a different (but not more expensive) plan option than the one in which they were enrolled when coverage was lost. Plan sponsors would have the option to permit this and would need to include the availability of that option in the notices they send out.