Many struggling businesses have been forced to lay off workers in the past year, and layoffs can leave former employees with limited health insurance options. Workers may be able to keep health insurance coverage under their ex-employer's plan, but it generally comes at a significant cost.
However, the new American Rescue Plan Act (ARPA) provides some relief to workers. Under ARPA, employers are required to offer a 100% subsidy to eligible individuals for a specified time period. The subsidies are tax-free to ex-employees and employers can recoup costs through a payroll tax credit.
Under the longstanding Consolidated Omnibus Budget Reconciliation Act (COBRA), an employer with 20 or more employees in the preceding year must offer continued health insurance to "covered employees." Generally, COBRA coverage is available to the employee, the employee's spouse, dependent children and even to an ex-spouse if group coverage would be lost due to certain qualifying events. These individuals are known as "qualified beneficiaries." To be eligible for COBRA coverage, the employee must have been enrolled in the employer's health plan when he or she worked there and the plan must still be active.
Employers are required to notify employees of their COBRA rights and to offer continued coverage, when warranted. But employers may shift costs to the departing employee and add a 2% administrative fee. Coverage is triggered by the following "qualifying events":
If the qualifying event is the covered employee's termination or reduction in work hours, the worker is entitled to 18 months of COBRA coverage. However, if the qualifying event is termination or reduction of hours and the employee became entitled to Medicare less than 18 months before the qualifying event, COBRA coverage may last for 36 months after the time the employee is eligible for Medicare. For certain other qualifying events, coverage must be provided for a maximum 36-month period.
ARPA provides a temporary 100% premium subsidy for qualified beneficiaries who are eligible for COBRA coverage between April 1, 2021, and September 30, 2021, due to an involuntary termination of employment or a reduction in hours. In other words, ex-employees don't have to pay a penny for their health insurance coverage during this period. Although the subsidy period ends on September 30, qualified beneficiaries may continue COBRA coverage after that date if they elect to pay the premiums themselves.
The new law doesn't extend the usual 18-month coverage period. But qualified beneficiaries now have another chance to elect coverage if they initially passed it up. However, in this case health insurance coverage may only be extended for the remaining time of the original COBRA continuation coverage period. Also, employers may choose to allow former employees to enroll in a different plan, so long as the plan's premiums aren't higher than those of the plan the employee had at the time of the qualifying event.
Your organization should identify individuals entitled to COBRA coverage who may benefit from these law changes and communicate the new rules with them. ARPA imposes three key notification requirements:
The burden for paying health insurance premiums shifts from ex-employees to employers during the new subsidy period. However, employers will be eligible for a refundable tax credit against payroll taxes. In the event the tax credit is refundable, an employer may be able to obtain advanced payment.
At the time of this writing, more details about the credit are still being worked out. Expect guidance from the IRS in the near future. In the meantime, contact us with your questions.
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