Apr, 12, 2021

COBRA Assistance in the American Rescue Plan Act: A Guide for States

Dan Meuse, SHVS

UPDATED: April 12, 2021 The Department of Labor has updated information on the COBRA Assistance program in the American Rescue Plan, including FAQs and model notices.

The American Rescue Plan Act (ARPA) was signed into law on March 11, 2021 as a signature effort to assist in the recovery from the COVID-19 pandemic and the related economic downturn. Included as part of the sweeping legislation is a program to fully subsidize COBRA coverage for six months starting in April of 2021. The COBRA Assistance program will operate alongside a number of other programs designed to improve affordability of insurance coverage, and states will need to review what actions they should take to implement ARPA provisions and assist their consumers. (www.harveymaria.com) This expert perspective provides a short overview of COBRA and mini-COBRA, the major elements of the ARPA COBRA Assistance program, and considerations for state policymakers related to the program.

COBRA Continuation Coverage

The Consolidated Omnibus Budget Reconciliation Act of 1986 (COBRA) included a provision that allowed a person who loses employer-sponsored coverage to remain in that coverage if they elect to pay the full premium amount, plus an administrative fee of two percent. As a result, for many, the cost of continuing their coverage through COBRA is prohibitively expensive. Indeed, the Kaiser Family Foundation estimates that the total annual cost of employer-sponsored health coverage offered by firms of 20 or more employees in 2019 was $7,012 for single coverage and $20,599 for family coverage.[i]

A person qualifies for COBRA coverage if their employment is terminated for any reason other than gross misconduct, or if their hours are reduced. Family members of an employee also qualify for COBRA coverage along with the employee or in the event of the death of the employee, divorce, or if the employee gains eligibility for Medicare. The employee must be enrolled in the employer health plan at the time of the qualifying event.

Employees and other beneficiaries must be provided notice of COBRA rights for continuation of coverage and the plan must be notified of a qualifying event to trigger a COBRA election notice. A person generally has 60 days to enroll in COBRA coverage after the qualifying event. Generally, COBRA coverage can be maintained for 18 months, unless the COBRA coverage is due to the employee’s qualification for Medicare, which provides a 36-month COBRA window.[ii]

COBRA generally applies to employers with 20 or more employees. Most states[iii] have a state continuation of coverage program for employees that are not protected by COBRA, often called mini-COBRA. While each state structures its mini-COBRA system a little differently, generally, the programs function in the same way as COBRA.

The American Rescue Plan Act and COBRA Assistance

ARPA creates a new 100 percent subsidy for COBRA coverage premiums from April 1, 2021, through September 30, 2021. Additionally, ARPA opens up the ability to enroll in COBRA coverage even if a person declined coverage earlier or if their enrollment window closed. Finally, ARPA extends the subsidy to continuation coverage under state mini-COBRA requirements.

Subsidy structure and operation. The COBRA assistance program is designed to be generally invisible to the enrollee. The language from ARPA reads: “In the case of any premium… for COBRA continuation coverage with respect to any assistance eligible individual described in paragraph (3), such individual shall be treated for purposes of any COBRA continuation provision as having paid in full the amount of such premium.”[iv] Enrollees that are eligible are deemed to have paid their premium. The assistance is accessed by plan sponsors or insurance companies as a refundable tax credit against payroll taxes.[v] This allows 501(c)(3) organizations to access the assistance credits. The Department of Labor has published guidance on identifying assistance-eligible individuals.

New COBRA election opportunity. ARPA also allows individuals who would have been eligible to enroll in COBRA coverage but did not enroll, as well as those who enrolled in COBRA but then unenrolled, to join (or re-join) COBRA coverage. However, no one can join coverage if their COBRA coverage window (either 18 or 36 months from their qualifying event) has passed. Also, coverage cannot extend beyond the original 18 or 36 month window.[vi] Plan administrators or insurance companies will be required to provide notice to those eligible for the new election opportunity by May 30, 2021.[vii]

State continuation of coverage programs (mini-COBRA). The COBRA Assistance program of ARPA is explicitly available for state continuation of coverage programs, also called mini-COBRA.[viii] These programs are generally available to employees of small employers (fewer than 20 employees) or other entities not subject to COBRA. Mini-COBRA programs, however, are not uniform across states, and include different election windows, notice requirements, and coverage eligibility categories.

Limitations. COBRA coverage allows for plan enrollment for anyone whose employment is terminated except for the reason of gross misconduct. The ARPA COBRA Assistance program limits assistance to those eligible for COBRA, unless the eligibility was due to the voluntary termination of employment by the employee.[ix] Also, COBRA is only available if the employer is still offering a health plan. ARPA allows for enrollment in the employer plan if it changed, but if the employer is closed, and no health plan is offered, there is no opportunity for COBRA enrollment. COBRA assistance does not apply to Health Reimbursement Accounts (HRAs) which some employers use to allow their employees to purchase their own coverage.

State Considerations for the COBRA Assistance Program

There are a number of elements of the COBRA Assistance program that warrant attention by state policymakers–even if COBRA is generally not a state-regulated program.

Limited time for COBRA Assistance. The COBRA Assistance program provides six months (April – September, 2021) of coverage subsidy. On October 1, there could be a bolus of newly uninsured and as it stands now, there is no Special Enrollment Period (SEP) for persons who choose to end COBRA coverage because of unaffordability. It is possible that legislation could be passed to extend the COBRA Assistance program, or that marketplaces could take action to allow a SEP due to loss of government COBRA subsidies.[x] However, persons that move into Marketplace coverage at that point would have to enroll in a new plan with a new deductible and maximum out-of-pocket limit for the final months of 2021.

Increased assistance for Marketplace coverage. ARPA also significantly increases the financial assistance available to consumers on the Marketplace. Not only are there additional subsidies to cap the cost of health insurance at 8.5 percent of income, the amount of income lower-income individuals are expected to pay towards premiums is also lowered.[xi] That means families up to 150 percent of the federal poverty level will have access to $0 premium plans and other income levels will see significant premium reductions. ARPA also provides $0 premiums for the so-called “high value silver” plans, with significantly reduced cost-sharing for anyone that is deemed eligible for unemployment compensation in 2021.[xii] These options provide a low or no-cost alternative to COBRA without the assistance cliff in October. As a result, states will need to develop communications support to help consumers navigate the complex decision process for options.

State mini-COBRA eligibility changes. The COBRA Assistance availability for state continuation of coverage programs, along with the new eligibility window, may require states to take regulatory or legislative action to allow individuals to re-gain access to mini-COBRA benefits so they can access the assistance. Given that the COBRA assistance begins in April and ends September 30 regardless of when and individual enrolls, states will need to take quick action to allow enrollment in mini-COBRA for eligible individuals.

The COBRA Assistance program creates a short-term, affordable health insurance option for many Americans impacted by the pandemic economic slowdown. As states work through the variety of opportunities to increase coverage through the American Rescue Plan, understanding the value and limitations of the COBRA Assistance program will be key to designing effective state policy and communicating with consumers about the options available to them.

[i] https://www.kff.org/private-insurance/issue-brief/key-issues-related-to-cobra-subsidies/ 

[ii] COBRA is overseen by the Department of Labor. Further information on COBRA can be found at: https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/faqs/cobra-continuation-health-coverage-consumer.pdf

[iii] https://www.kff.org/private-insurance/state-indicator/expanded-cobra-continuation-coverage-for-small-firm-employees/?currentTimeframe=0&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D

[iv] Public Law 117-2. Section 9501(a)(1)(A)

[v] Public Law 117-2. Section 9501(b)(1)(A)

[vi] Public Law 117-2. Section 9501(a)(4)

[vii] Public Law 117-2. Section 9501(a)(5)(C)

[viii] Public Law 117-2. Section 9501(a)(9)(B)

[ix] Public Law 117-2. Section 9501(a)(3)(A)

[x] Note: In 2020, healthcare.gov created a SEP if an employer completely ceases to subsidize someone’s COBRA premiums.

[xi] Public Law 117-2. Section 9661

[xii] Public Law 117-2. Section 9663