The Employer’s Guide to COBRA Continuation Coverage

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If you are providing health benefits for your employees and one of them leaves, there are circumstances in which COBRA continuation coverage allows for them to temporarily extend their healthcare services. While this is a bit of a departure from how most group plans work (especially plans for employers of 20+ people or more), there have traditionally been ways to receive partial subsidy to cover the amount you have to pay out of pocket.

However, the American Rescue Plan Act (ARPA) offers 100 percent COBRA subsidy to eligible individuals between April 1, 2021 and September 30, 2021. Under this plan, individuals receiving the COBRA extension do not pay any money out of pocket, while employers are subsidized for their portion of the coverage. This is an extremely important and beneficial portion of the ARPA for organizations that utilize COBRA, and the window of time to take advantage of it is narrow. With that in mind, we’ve created a handy guide so you can see how to best benefit from this subsidy.

Employer Guidelines for the new COBRA Subsidy

Your organization wants all former employees who qualify to get the coverage they need, and at the same time, you do not want to be billed for any portion of the coverage you don’t have to pay. The process to get COBRA coverage is somewhat intricate and requires significant attention to detail, so we have broken it down into a few separate actionable segments:

COBRA coverage Cartoon

How Does the Subsidy Work?

The final version of the ARPA provides 100 percent subsidy for COBRA coverage for eligible individuals during the assistance period of April 21-September 30, 2021. Eligible individuals are not charged for health care, while employers receive a tax credit through quarterly payroll returns.

Employers must submit a list of eligible employees and comply with subsequent notice requirements to let covered individuals know when the assistance period ends. Other than that, there are no financial restrictions or discriminatory practices that would exempt an employee from receiving benefits they might be entitled to.

COBRA Subsidy Eligibility

When an individual leaves a job that has COBRA coverage, they are eligible for continuation of care during what is called the ‘Assistance Period’. While not everyone qualifies for this, the eligibility often includes involuntary termination of employment, or a reduction of hours for any reason (it does not have to be Covid related, though it is very common at this time).

Additionally, coverage can be offered to employees who did not initially elect to choose COBRA or have discontinued it, but would like to utilize the coverage as they leave the organization. Regardless of what circumstance provided eligibility, all qualified beneficiaries must choose to enter the Assistance Period within 60 days of employer notice and before April 1, 2021.
small business payroll

Multiple Health Care Option Eligibility

A common question among employers extending COBRA eligibility is whether they can offer it to employees who might be using an alternative option offered by the company. It is not entirely uncommon for there to be multiple health care options, but very few of them if any have the COBRA subsidy.

With the 2021 ARCA rules, you can change to COBRA from a marketplace plan under almost any circumstances up until the April 1, 2021 enrollment date. This switch will not affect an employer’s eligibility for full subsidy, so it is a move we recommend both parties make promptly should the employee need extended coverage.

Subsidy Notice of Availability

In order to provide those who are eligible for the subsidy and confirm their request for change, there are a few more steps to get an employee enrolled. The action items can be summarized as:

  • Identify all potential COBRA qualifiers who are eligible, and send them at notice no later than May 31, 2021.
  • Decide whether your organization will offer alternative coverage.
  • Amend the COBRA notices to reflect whether there is an alternative Marketplace plan being used (available through May 15, 2021).
  • Notify those receiving subsidy when the Assistance period will end.

COBRA Cartoon Coverage

We recommend consulting with payroll and accounting specialists as well as your legal representation should you have significant questions or concerns regarding the COBRA continuation coverage via the ARCA.

Need More Information? Ask The PayTech Pros.

At PayTech, we provide functional solutions for payroll, accounting, and HR to businesses of all types and sizes. The COBRA continuation subsidy can be a tricky topic, but our team has decades of experience in helping companies put the proper plans in place.

With that in mind, reach out for a free consultation today so we can get you partnered with one of our qualified professionals. We’re confident that by working with us, you and your employees will soon be receiving the help you need.


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