COBRA subsidy details: Notification deadline approaching

As part of the American Rescue Plan Act signed into law in March, employers can receive a 100% subsidy for extended COBRA coverage for employees who were terminated or who lost coverage because their hours were involuntarily reduced or they were involuntarily terminated, making them eligible for COBRA.

While employers must bear the cost of the extended coverage up front, employers will be reimbursed for premiums through a payroll tax credit or a refundable credit if the premiums are greater than the payroll tax obligation.

Here are a few things to know:

The temporary COBRA continuation coverage paid by employers goes into effect April 1, 2021, and extends through September 30, 2021. An eligible employee is one who:

  • Is enrolled in COBRA as of April 1, 2021;
  • Became eligible for COBRA between April 1 and September 30, 2021; or
  • Would have still been eligible for COBRA on April 1, 2021, but either did not elect coverage or dropped coverage.
  • Who would qualify for the premium subsidy and are either:
    1. Still within their 18-month COBRA coverage period but declined COBRA coverage; or
    2. Dropped COBRA coverage before the maximum coverage period expired. A special election period would be available for these qualified beneficiaries.

Employers have a responsibility to notify eligible employees about the parameters of the temporary continuation coverage. They must:

  • Identify former covered employees and qualified beneficiaries who may be eligible. This would include any employee who had an involuntary termination of employment or hours reduction between November 1, 2019, through March 31, 2021. This also includes any employees issued new notices of termination beginning April 1, 2021.
  • Send an initial notice to covered employees and qualified employees – even if in some cases they are not eligible for the subsidy – by May 31, 2021.
  • Notify those employees whose COBRA coverage continues through or beyond September 30, 2021, that the COBRA subsidy is coming to an end. This notice must be made between 45 and 15 days of the end of the subsidy period.

Notice of the subsidy can be handled via the employer’s COBRA plan administrator/insurance carrier. Employers will need to work with their COBRA carriers to identify the qualified employees to submit notices and to invoice the employer for these COBRA premiums.

The employee should not pay any of the COBRA continuation premiums during this period. If an employee does make a premium payment during the subsidy period, the employer must reimburse the employee for those payments.

The employer will recover premiums either through a payroll tax credit or a refundable credit if the premiums are greater than the payroll tax obligation. The reimbursement to the employer for these costs will be via Form 941 Quarterly Payroll Returns. Further guidance and forms similar to what employers used to recover paid leave costs under the FFCRA are expected to be forthcoming.

Nina M. Daigle, CPA, is a partner with Antares Group, Inc. She can be reached at ndaigle@antarescpas.com.