The American Rescue Plan Act (ARPA) of 2021 includes requirements for premium payment assistance to certain COBRA or state continuation eligible individuals. All employers subject to federal COBRA or state continuation must offer temporary assistance for employees on continuation coverage from Apr 1–Sep 30 of 2021.
Employers must cover COBRA/continuation premiums for these assistance eligible individuals for the temporary time period. In return, the federal government will be subsidizing employers for these payments on quarterly tax forms as tax credits. After Sep 30, 2021, employers can continue to charge assistance eligible individuals the regular COBRA/continuation premiums.
While Gusto and its COBRA administrator BASIC Pacific will assist as possible, employers subject to state continuation or who do not use BASIC will be responsible for ensuring eligible participants receive the correct notices and filings for tax credits.
The subsidy, and therefore the reimbursement, is only available between Apr 1 and Sep 30 of 2021.
Employers are not required to subsidize continuation premiums outside of that time and will not receive a tax credit should they choose to.
The subsidy does not extend the months of continuation coverage available.
For example: For federal COBRA, the continuation period lasts for 18 months. If a COBRA qualified beneficiary’s QLE was on Feb 1, 2020, they would still only be eligible for coverage from Feb 1, 2020, until Jul 31, 2021 18 months of coverage.
Generally, the subsidy only applies prospectively, meaning that premium assistance only begins from the date of election and not the entire continuation period.
For example: if an individual has a QLE on Jun 1, 2021, they may only enroll in assistance from that date till the expiration of assistance.
Exception: if an individual has a QLE on or before Apr 1, they may choose to start their coverage as of Apr 1, even if the individual receives an election notice and makes such an election at a later date.
These are employees and their dependents who enrolled in continuation coverage and have one of the following qualifying life events that caused them to lose group health coverage:
It also includes employees and their dependents with the above qualifying life events who did not enroll in or dropped continuation coverage as of Apr 1, 2021–so long as:
Dependents, limited to the employee’s spouse and children, are eligible if the employee experienced one of the previously detailed QLEs, causing the dependent to also lose coverage.
Examples of non-eligible QLEs include:
Assistance eligible individuals who want to receive premium assistance must submit their “Request for Treatment as an Eligible Individual” with their election forms. The form must be submitted within 60 days of receipt of the subsidy notices.
Any other extension of elections provided under COVID-19 relief is not applicable for electing the subsidy. This subsidy does not extend the time period of continuation coverage, and the overall continuation period end date will be based on the date of the original QLE occurred and not the date of the election for assistance.
You can view more information for individuals on the Department of Labor website dedicated to the COBRA subsidy.
Who's responsible for subsidizing premiums?
Generally, employers will be responsible for paying for an assistance eligible individual’s premiums during the required subsidized time period. This includes employers subject to federal COBRA and employers subject to state continuation.
If you're an employer and the carrier in your state must comply with state continuation rules not plan sponsor or employer–such as California–the carrier will be responsible for paying premiums.
What happens if the employer doesn't subsidize premiums?
If an employer doesn’t subsidize premiums for assistance eligible individuals, they’ll owe them the premiums for the months they should have been receiving assistance. There's also a risk of civil penalties from the IRS or the Department of Labor for non-compliance.
The employer must reimburse the eligible individuals for premiums within 60 days of an erroneous payment.
Employers or their COBRA administrators are required to send out specific notices to assistance eligible individuals and qualified beneficiaries.
If you’re using a COBRA administrator, contact them directly to determine whether they’ll be supporting notice requirements and how.
An employer will receive 100 of the cost they pay to subsidize assistance eligible individuals through a credit on their quarterly payroll tax filings against the employer share of Medicare tax. Gusto does not request this credit or refund on your behalf. You can apply for a refund of the credit on an amended quarterly Form 941 called Form 941-X outside of Gusto.
Reminder: tax credits are only available for continuation premiums paid for assistance eligible individuals from Apr 1–Sep 30 of 2021.
Gusto does not support applying tax credits in advance of tax payments
If another broker manages your benefits, reach out to them to understand whether your company is liable for Federal COBRA or state continuation.
If your benefits are managed by Gusto:
If you believe this information is incorrect, contact us at [email protected]. If you wish to learn more about your state continuation rules, visit your state government's website.
Contact your COBRA administrator to see what reporting they can provide you and if they’ll be handling the temporary requirements under ARPA.
Employers subject to state continuation are also required to comply with premium assistance under ARPA. Read below to learn more about your obligations and other critical information.
If your company is located in one of the states listed below and state continuation applies, your insurance carrier may be responsible for the notifications and subsidization of continuation premiums. Contact your carrier directly for more information.
If your company is located in and has its plans written out of one of the following states, you’re likely not required to abide by ARPA’s subsidization requirements–likewise, you’re also not likely to be able to receive a tax credit for offering the subsidy since you aren’t subject to the ARPA requirements.
Contact your broker to see if your company is obligated to meet the temporary requirements outlined by the ARPA. If so, work with your broker and COBRA administrator to determine what support they’re offering and if they’ll be notifying employees as required. Find out if they’re able to help with reporting as well–it’ll be helpful for those quarterly tax filings.
If you need help determining which individuals are assistance eligible, contact [email protected]. We’re building a report that will help us walk you through determining who's eligible.