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COBRA Users Face End to Temporary Premium Payment Help

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What You Need to Know

  • Congress created the subsidy to help people keep employer sponsored coverage in place during the pandemic.
  • The program ends Sept 30, 2021.
  • Under the usual COBRA rules, employers can charge workers who take up continuation coverage up to 102% of the premiums.

The end of a temporary federal health insurance premium subsidy program could push millions of people into the market for individual and family health coverage Oct. 1.

The program, created by the American Rescue Plan Act of 2021 (ARPA), provided billions of dollars in aid to help displaced workers keep their usual employer-sponsored health benefits in place during the COVID-19 pandemic, by paying 100% of the premiums for COBRA health benefits continuation coverage.

ARPA and COBRA

A section in the Consolidated Omnibus Budget Reconciliation Act of 1985 gives many group health plan enrollees the right to pay to keep their employer-sponsored health coverage in place when they leave their emloyers.

Under the ordinary COBRA rules, employers can charge workers who keep their health benefits as much as 102% of the premiums.

ARPA drafters set the temporary, COVID-19-era COBRA premium payment program to begin April 1 and end Sept. 30.

Employers could choose whether or not to offer the ARPA subsidy for COBRA payments to departing workers. The employers that offered access to the temporary COBRA subsidy were supposed to notify the former employees of the end of the subsidy by Sept. 15, according to an analysis by three lawyers at Venable — Juliana Reno, Lisa Tavares and Ryann Aaron.

The lawyers noted that implementation of the new subsidy was so rushed that regulators have not yet explained how employers are supposed to handle some common subsidy scenarios, such as when workers left their employers and became eligible for subsidy help only in August.

“The IRS has not provided specific guidance regarding these scenarios,” the lawyers wrote. “We are hopeful that the IRS will not impose penalties if a plan administrator provides the expiration notice at a time that is reasonable under the circumstances.”

Size of the COBRA Subsidy

Congressional Budget Office analysts predicted, while the bill containing the subsidy was being debated, and when the subsidy amounted to just 70% of the COBRA premiums, that the bill would help 2.2 million people get covered.

Eligible employers may have needed to be relatively sophisticated to know that the rapidly launched ARPA benefits continuation subsidy program existed.

Most employers can collect the ARPA subsidy by using the amounts paid to keep former workers’ group health coverage in place to reduce the amounts owned on their Form 941 quarterly tax returns.

Employers were supposed to file their 941 forms for the first quarter that included the new ARPA subsidy payments — the second quarter of the calendar year — by July 31. Detailed information about how the new subsidy affected the employers’ quarterly tax bills or COBRA health coverage take-up rates is not yet available.

In the past, many new federal health subsidy programs have turned out to be much smaller than program architects and CBO analysts had predicted.

The Impact

ARPA increased subsidies for individual and family health coverage purchased through the Affordable Care Act public exchange program as well as adding the COBRA subsidies.

That means many people who lose ARPA help  could end up buying coverage through ACA exchange programs.

The people who lose the subsidized COBRA coverage could also:

  • Pay for COBRA coverage under the ordinary COBRA rules.
  • Rush to take jobs that provide employer-sponsored health benefits.
  • Buy limited-benefit alternatives to major medical insurance, such as short-term health insurance.

(Image:0 Igor Negovelov/AdobeStock)