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Our attorneys stay on top of changes in legislation, agency regulations, case law, and industry trends—then craft timely legal alerts to keep clients up to date on legal developments important to their business.

March 16, 2021

Urgent Action Items: Employers Must Offer 100 Percent COBRA Subsidy and New Enrollment Period Beginning April 1, 2021

The American Rescue Plan Act of 2021 (ARPA), signed by President Biden on March 11, 2021, requires employers to provide 100 percent COBRA subsidies beginning April 1, 2021, through September 30, 2021, for employees who experienced an involuntary termination of employment or reduction in hours. Employers must also offer a new COBRA enrollment period beginning April 1, 2021, to allow individuals who previously failed to elect or dropped COBRA to elect coverage and receive the subsidy. New notice requirements apply, and employers must act quickly to prepare for the April 1, 2021, implementation date. This alert outlines specific action items.

Although this alert does not address ARPA in detail, employers should be aware that ARPA also permits an optional increase to the maximum annual dependent care flexible spending account limit from $5,000 to $10,500 and provides new funding rules and financial assistance relief to pension plan sponsors.

Question 1: Which Employers Must Provide 100 Percent COBRA Subsidies?

All employers with 20 or more employees must provide 100 percent COBRA subsidies, as these employers are subject to COBRA. COBRA requires continuation of employer-sponsored group health plan coverage when individuals lose their coverage as a result of certain events. COBRA coverage is provided for a limited period, and the spouse and dependents of COBRA-eligible employees and former employees also have independent COBRA election rights.

Under ARPA, employers subject to COBRA must subsidize 100 percent of the COBRA premium for certain individuals, as described below. The subsidy requirement applies to both fully insured and self-insured employer plan sponsors.

Question 2: Who Is Eligible to Receive the 100 Percent COBRA Subsidy?

Current and former employees who are eligible for COBRA due to an involuntary termination of employment or reduction in hours and the COBRA-eligible dependents of these employees (e.g., spouse and dependent children) are eligible for the 100 percent COBRA subsidy. In addition, current and former employees (and the spouse and dependents of these employees) who previously declined or dropped COBRA coverage, and who enroll in coverage under the new COBRA enrollment period (described in Question 9 below), must receive a 100 percent COBRA subsidy.

Question 3: Who Can Be Excluded From the 100 Percent COBRA Subsidy?

Employers may voluntarily provide the subsidy to employees who voluntarily terminated employment, and the spouse and dependents of these employees, but are not required to do so. Additionally, under existing COBRA law, employers are not required to offer COBRA to employees who were terminated for gross misconduct, and so employers are not required to provide those employees and their dependents the ARPA subsidy if they were denied COBRA due to gross misconduct. Employers should not attempt to deny subsidies based on “gross misconduct” if they previously offered the individual COBRA.

There is no uniform definition of “gross misconduct” under COBRA. Employers must carefully consider decisions not to extend COBRA due to gross misconduct with legal counsel based on existing case law and federal guidance. Generally, a termination “for cause” should not be considered a termination for “gross misconduct,” although in certain cases a termination for cause could rise to the level of gross misconduct. Employers should consult with legal counsel with any questions regarding individuals who are eligible for or excluded from COBRA, as special notice requirements may apply.

Individuals whose maximum COBRA coverage period has expired, or would expire, on or after April 1, 2021, can also be excluded.

Question 4: Which Benefits Are Subject to the 100 Percent COBRA Subsidy?

COBRA applies to employer-sponsored group health plans, including medical, dental, and vision plans, health flexible spending accounts (FSAs) and health reimbursement accounts (HRAs). In addition, some employee assistance programs (EAPs), wellness programs, and on-site medical clinics are subject to COBRA. All benefits subject to COBRA are subject to the 100 percent COBRA subsidy (except health FSAs, which are excluded under ARPA).

Question 5: How Long Must the Subsidy Be Provided?

Employers must provide the 100 percent COBRA premium subsidy for periods of coverage beginning April 1, 2021, through September 30, 2021.  In other words, COBRA beneficiaries who are currently enrolled in coverage (or those who elect COBRA pursuant to the new COBRA enrollment period, described below) must receive fully subsidized COBRA for coverage during the months of April, May, June, July, August, and September of 2021.

However, the subsidy is not required for individuals for periods of coverage on or after (i) the date the individual’s maximum COBRA coverage period expires (at which point, COBRA can be terminated), or (ii) the date the individual becomes eligible for “other coverage,” including employer-sponsored group health plan coverage, a flexible spending arrangement (as defined under Internal Revenue Code Section 106(c)(2)), a qualified small employer HRA (as defined under Code Section 9831(d)(2)), or Medicare. Individuals will be required to notify employers if they become eligible under “other coverage” as outlined in ARPA, and the DOL will be clarifying a deadline and form for individuals to provide this notice. It appears individuals may be penalized for intentional failure to provide this notice, although penalties will not apply if the failure is due to “reasonable cause.”

Question 6: Will Employers Be Reimbursed for Providing the Subsidy?

Yes. Employers must advance the subsidy to COBRA beneficiaries, but can claim a quarterly tax credit against the employer’s Medicare hospital insurance taxes owed on employee wages. The credit may be advanced to employers using forms and instructions that will be provided by the IRS. If the amount of the credit exceeds the taxes owed, the credit is refundable to the employer. The total credit that can be claimed equals the total amount of premium subsidies provided (including the 2 percent administrative fee that employers can normally charge COBRA beneficiaries).

Question 7: Will the Subsidies Impact Other Employer Tax Reporting Obligations?

ARPA COBRA subsidies are excludable from employees’ gross income. Additionally, individuals will be ineligible for Affordable Care Act (ACA) advance premium tax credit subsidies toward exchange coverage for months in which they receive ARPA COBRA subsidies. We expect the 2021 employer ACA reporting forms will include a code to indicate whether an employee was offered ARPA-subsidized COBRA (e.g., new Form 1095-C Line 14 or 16 codes).

Question 8: What Employee Notices Are Required?

Employers must notify employees of the 100 percent premium subsidy and provide a new COBRA election form for the new COBRA enrollment period. The DOL will provide model language for new COBRA election period forms within the next several weeks; however, employers should not wait to update existing COBRA election notices that will be used in the interim. Employers should also immediately notify current COBRA beneficiaries that COBRA premiums will not be required beginning April 1, 2021, (in particular, employers who administer COBRA in-house or otherwise accept payments from COBRA beneficiaries). Lastly, employers will be required to notify employees when the subsidies expire.

ARPA sets forth detailed notice requirements; election notices and communications should be reviewed with legal counsel. As outlined in a previous alert, COBRA failures continue to pose six- to seven-figure penalty and litigation risk to employers.

Question 9: Do We Have to Offer a New COBRA Enrollment Period?

Yes. ARPA requires employers to offer a new COBRA enrollment period for employees who previously failed to elect or dropped COBRA coverage. The new COBRA enrollment period is only required to be offered to individuals who became eligible for COBRA due to involuntary termination of employment or reduction of hours in the last 18 months. The same individuals who can be excluded from receipt of the subsidy as explained in Question 3 (above) can be excluded from the new enrollment period offering (e.g., voluntary terminations, terminations for gross misconduct, and individuals whose maximum COBRA coverage period has otherwise expired).

This new enrollment period will allow eligible individuals to elect COBRA and take advantage of the premium subsidy period. Individuals must be provided with new COBRA election notices by May 31, 2021, and will receive subsidized COBRA coverage effective April 1, 2021, if coverage is elected. ARPA states that individuals have a 60-day election window once provided with an ARPA COBRA election notice; it is unclear whether this election window must be extended due to ongoing COVID-19-related plan deadline extensions (further DOL guidance on this point is anticipated).

Question 10: What Do We Need to Do Next?

Employers must immediately begin preparing for the April 1, 2021, implementation date. Employers should work with legal counsel to avoid COBRA penalty and litigation risk:

a) Update existing COBRA election notices to describe the subsidy. Existing notices should be revised as soon as possible, so employees receiving a COBRA election notice in the coming weeks are advised of the premium relief.

b) Communicate subsidy relief to current COBRA beneficiaries. Those who have already elected COBRA or are paying for coverage should be sent a notice advising them that premiums will not be required from April 1, 2021, through September 30, 2021. Employers that administer COBRA in-house or otherwise accept payments from individuals should act quickly to ensure they don’t receive COBRA checks for April 1, 2021, coverage; payments received during the ARPA subsidy period must be returned to participants within 60 days of receipt.

c) Provide new election notices for new COBRA enrollment period. The required communication and new election notice for those who failed to elect COBRA or previously dropped coverage in the last 18 months must be distributed by May 31, 2021.

d) Identify employer personnel who will apply for the employer subsidy tax credit. Employers should be prepared to act and claim the credit once the IRS issues its model forms and instructions.

e) Be prepared to issue notice of subsidy expiration. Employers will be required to notify employees when the subsidies expire. We expect further guidance and model formsfrom the DOL on this point.

If you have any questions regarding the content of this alert, please contact Art Marrapese, Employee Benefits Practice Area chair, at; Alexandra Lugo, associate, at; or another member of the firm’s Employee Benefits Practice Area.

We also have a specific team of Barclay Damon attorneys who are actively working on assessing regulatory, legislative, and other governmental updates related to COVID-19 and who are prepared to assist clients. Please contact Yvonne Hennessey, COVID-19 Response Team leader, at or any member of the COVID-19 Response Team at


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