You may have heard about the COBRA subsidy in the new stimulus bill, the American Rescue Plan Act, or Rescue Plan, which requires employers to pay the full cost of COBRA benefit premiums for former employees (and their dependents) between April 1, 2021 and September 30, 2021. This is true, but there is some fine print you should understand if you or your family depends on health benefits provided by your employer.
The Consolidated Omnibus Budget Reconciliation Act (COBRA) allows employees to continue their employer-based health benefits for up to 18 months after their employment ends. Check out our prior blog on the COBRA basics.
What are the 2021 COBRA subsidy benefits?
Starting April 1, 2021, here are the temporary COBRA benefits now provided under the Rescue Plan, which apply only if you have been involuntary terminated (not due to gross misconduct) or if your lose health insurance because of a reduction in hours:
- Employers are required to pay 100% of COBRA premiums between April 1, 2021 and September of 2021.
- This requirement is retroactive, but the Rescue Plan does not extend the 18-month benefit period. This means that if you lost your job sometime in the past 18 months (remember – COBRA only gives you 18 months of benefits), you can get between one to six months of paid medical insurance premiums between April and September assuming you still have time left in your 18-month window.
- You can take advantage of the COBRA subsidy regardless of whether you elected to continue under COBRA when you were terminated. This means that even if you declined COBRA previously, you can now opt in for coverage if you have any time remaining.
- Dependents’ insurance you previously had on the employers’ policy is also covered.
- If you qualify for the free premiums but end up paying for any months between April and September, you should get a refund within 60 days.
- Your employer may allow you to upgrade or change your health plan, although this is not required.
- The employer will be reimbursed for your COBRA payments by the government through a tax credit.
Am I eligible for the COBRA subsidy if I quit my job?
No. The Rescue Plan benefits do not apply if you quit your job.
You are also ineligible if you are terminated for gross misconduct or otherwise qualify for benefits under a different group health plan or Medicare, so you should contact your former employer’s plan administrator immediately. If you fail to do so, and your employer pays premiums for you during a period of ineligibility, you could be subject to penalties.
How do I know if I qualify?
- If you qualify for COBRA subsidy, the employer is required to notify the health-plan administrator, and you should be given written notice stating your right to choose to elect or continue benefits.
- You then have 60 days to accept coverage or lose all rights to the benefits.
- If you are eligible for the subsidized COBRA benefits provided under the Rescue Plan, your notice should explain the new benefits, and if you were issued a notice already, you should receive a new notice describing the Rescue Plan benefits.
- You should also get a notice when your paid premiums are about to end so you can plan accordingly.
Be aware that employers and/or their plan providers sometimes mess this up, and may fail to notify you properly, even though this omission is a violation of the law. It is important to be proactive if you do not receive notification. There are strict deadlines that could expire, and any delay could hamper or prevent you from obtaining continuation coverage.
If your employment ends and your employer wants you to sign a release or exit agreement, you should understand that offering these paid premiums to you is no longer a bargaining chip for your employer. These are benefits you are entitled to under the law through September 30, 2021. You also want to make sure you do not sign any document waiving your rights to the Rescue Plan benefits.
Any time your employer asks you to sign a release (or severance agreement or separation agreement), you should seek the advice of an experienced employment attorney to review that contract to protect your rights and make sure you understanding your employer’s legal obligations.