We have previously published a blog, found here, about the American Rescue Plan Act that requires employers to pay 100% subsidy of COBRA premiums for the period of April 1, 2021 to September 30, 2021 for involuntarily terminated employees who elect coverage. At the time, there were still questions that remained about ARPA. The IRS recently provided guidance on many of the issues regarding this subsidy. Below is a summary of the most important guidance for employees.
Who is Eligible for the COBRA Subsidy?
In order to receive the COBRA subsidy, you must be an “Assistance Eligible Individual” (AEI). An AEI is someone who:
- loses coverage because of a “qualifying event”, either a reduction in hours or an involuntary termination, as long as the termination was not for gross misconduct,
- was covered under the group health plan on the day before the qualifying event,
- is eligible for COBRA coverage at some point during April 1, 2021 to September 30, 2021; and
- elects COBRA coverage (even if you had not previously elected coverage).
Importantly, you lose eligibility for the COBRA subsidy the moment you become eligible for and can actually enroll in other coverage or Medicare.
Spouses and dependent children can also be considered AEIs as long as they were covered by the group health plan before the qualifying event (i.e. involuntary termination).
What is an Involuntarily Termination for ARPA COBRA Subsidy?
An involuntary termination occurs when the employment relationship ends based on the unilateral authority of the employer where the employee is willing and able to continue performing services, and is not terminated due to the employee’s implicit or explicit request. For example, retirement generally is not an involuntary termination.
Are You Eligible If You Quit Your Job?
Generally, no. You are not eligible for the COBRA subsidy under ARPA if you voluntarily terminate or quit your job. However, the IRS outlined certain exceptions to this rule which include:
- When your employer takes an action that results in a material negative change in your employment relationship. This is sometimes referred to a “constructive discharge”.
- When your employer materially changes the geographic location of your employment.
- When your employer offers employees to elect a severance program during a set period of time and it is elected.
- When you voluntarily quit in response to an involuntary material reduction in your hours.
- When your employer does not renew your employment contract, if you were willing and able to continue to work for the employer under the same terms as the previous contract or were willing to continue working at-will. (However, if both you and your employer understood from the outset of the contract that the agreement would not be renewed, then this is not an involuntary termination).
Can You Become Eligible for the COBRA Subsidy More Than Once?
Yes, you can become an AEI more than one time during the subsidy period of April 1, 2021 to September 30, 2021. Say, for example, you experience an involuntary termination and you qualify as an AEI yourself, but later, if your spouse becomes eligible to add you under his employer’s group plan, you will lose your AEI status. If your spouse later gets involuntarily terminated, you can be an AEI again, if it occurs between April 1, 2021 and September 30, 2021.
Can Your Employer Require You to Self-Certify or Attest That You Are Eligible for the Subsidy?
Yes, your employer can require that you certify or attest that you are eligible for the subsidy. Your employer can also require you to certify or attest to your eligibility under any other group health plans that would make you ineligible for the COBRA subsidy.
What if the Involuntary Termination Occurred Before April 1, 2021?
As long as you are within the 18-month period from your termination in which to select COBRA, you can still receive the COBRA subsidy even if the involuntary termination occurred before April 1, 2021 and even if you initially declined COBRA coverage. If this scenario applies to you, your employer was required to send you notice of your right to choose the COBRA subsidy by May 31, 2021. You then have 60 days from the time you receive that notice to elect the subsidy.
During those 60 days, you must decide whether to elect retroactive COBRA for the pre-April 1, 2021 period and you cannot choose retroactive COBRA after the 60 day window. However, the COBRA subsidy only applies for April 2021 through September 2021, so you will be responsible for any costs for COBRA coverage that pre-date April 2021.