Holy Cow That’s a Lot of Paid COBRA

WHAT: The American Rescue Plan had a surprise: an employer-funded COBRA subsidy mandate starting April 1, 2021 and lasting through the end of September 2021. The bigger surprise: there is an 18-month look back. 

  • You must comply with new Notice requirements for the look back group and any employees eligible for COBRA from April 1, 2021-September 30, 2021.

WHEN: New COBRA notices (more details below) must go out via first class mail by May 31, 2021.

WHO: Any employee welfare benefit plan providing medical care to participants or beneficiaries directly, or through insurance, reimbursement or otherwise meets the definition of group health insurance. Any COBRA eligible employee (and his/her qualified beneficiaries) who lost employer-provided health insurance in the last 18 months is eligible for this subsidy –even those who previously refused COBRA. This includes employees covered under any State’s “mini-cobra” program provided that coverage is similar to federally-mandated COBRA coverage.

What about gross misconduct? Are we stuck paying the COBRA subsidy?  This is a tough pill to swallow as many of you have entered Separation Agreements in lieu of well-deserved termination. Or maybe you have not contested unemployment and COBRA eligibility even without an agreement. This provision is not helpful. There are two major reasons you will very likely have to pay the subsidy even in the case gross misconduct:

  1. The Separation Agreement or your previous allowance of COBRA without an agreement waives your right to contest (as does allowance of unemployment);
  2. Gross misconduct under COBRA is, well, grossly high to prove. If you believe you have an instance of gross misconduct, which does exist, we would be happy to help you of course.


Create a list of all employees who have experienced a COBRA-qualifying event in the last 18 months, from October 1, 2019, to April 1, 2021 (or up to 36 months, or April 1, 2018, in certain cases of extended COBRA benefits).

The list will include:

  • Employees who have been laid off, except for gross misconduct;
  • Employees who lost health insurance due to a reduction of hours;
  • Employees who become eligible for COBRA between April 1 and September 30, 2021;
  • Employees who had a COBRA qualifying event in the last 18 months, but declined COBRA coverage or dropped COBRA coverage.

This does not include anyone who left employment voluntarily.

Separation agreements must be reviewed and may need to be amended by counsel to take this subsidy into account if there is one.

Draft new COBRA notices for all qualified employees/former employees identified in Step 1 and send out via first class mail by May 31, 2021.

The new COBRA notice must include:

  • A description of the extended election period provided by the American Rescue Plan (i.e., the availability of premium assistance between April 1 and September 30, 2021);
  • The name, address and telephone number necessary to contact the plan administrator and any other person maintaining relevant information in connection with premium assistance;
  • Forms necessary for establishing eligibility for premium assistance;
  • This general notice should also include a statement regarding the option to make a plan enrollment change (if the plan permits this, as this is an optional provision under the American Rescue Plan);
  • Description of the obligation of the qualified beneficiary and the penalty provided under section 6720C of the IRC for failing to provide this notice; and
  • A description displayed prominently of the beneficiary’s right to a subsidized premium and any conditions on entitlement.

Keep track of election periods and the end of COBRA coverage.

Employees who receive this new notice have 60 days to elect COBRA coverage if they are not presently receiving COBRA coverage or have discontinued COBRA coverage.

If an employee has exhausted 18 months of regular COBRA coverage – the subsidy does not extend that eligibility period.

Remember: If any employees become eligible for COBRA between April 1 and September 30, 2021, you will need to provide this new COBRA notice.

End of COBRA additional required notification for all COBRA-eligible employees: a notice must always be sent between 15 and 45 days before the end of COBRA coverage.

The notice will be required if the employee loses eligibility for COBRA coverage during the subsidy period (e.g., 18 month expires) or in late August/September relative to the free COBRA benefit to all eligible employees.

The notice must include:

  • Notice that the premium assistance will expire on a certain date; and
  • The individual may be eligible for coverage without premium assistance through:
    • COBRA; or
    • Coverage under a group health plan.

Pay 102% COBRA premium costs (or however much is charged for COBRA premiums under your plan) for eligible employees between April 1 and September 30, 2021.

Any payment you provide upfront can be charged as a Federal Medicare payroll tax credit. Similar to FFCRA tax credits, the credits may be obtained through submitting Form 941 on a quarterly basis.

The tax credits are provided to the following entities:

  • If the plan is a multiemployer plan, the multiemployer plan itself.
  • If the plan is fully or partially self-insured, to the employer that sponsors the plan (including state and local governmental employers).

EXCEPTION: Once eligible for either group health coverage or Medicare, the COBRA subsidy stops for any month of coverage that begins on or after the earlier date of newly eligible coverage. Former employees are obligated to notify employer when they become eligible for either group health coverage or Medicare.

Whew! Please contact us If you need assistance in drafting updated COBRA Notices or have any questions. We can help.