The American Rescue Plan Act of 2021 (ARPA) was signed into law on March 11, 2021. One component of ARPA that has garnered a lot of attention is the expansion of subsidies for purchase of plans on the Affordable Care Act health care exchanges. A lesser known provision would provide subsidies for employees who lost their employer-provided health insurance due to an involuntary termination or reduction of hours. Subsidies will be available for up to six months.
The Consolidated Omnibus Budget Reconciliation Act (COBRA), passed twenty-five years ago, gave employees the right to obtain continued coverage under the employer’s health plan following certain events, including job loss. The intent of COBRA continuation coverage was to avoid gaps in health insurance for workers between jobs and their families. But unfortunately, many workers who are eligible for COBRA don’t use it because of the cost. The premium cost under COBRA can be up to 102% of the total cost of health insurance, including the contributions from both the employer and employer. Since this is typically much higher than the employer-subsidized rate that employees have been paying, most of them suffer substantial sticker shock when they receive the notice from their employer about the availability of continued coverage.
ARPA provides premium assistance for 100% of the COBRA premium beginning April 1, 2021, for employees and dependents who lost health plan coverage on or after November 1, 2019 because of an involuntary termination of employment or reduction in hours. This applies even to employees who did not elect to take COBRA or whose coverage lapsed, as long as they are still within the period of eligibility (18 to 36 months, depending on the reason for loss of coverage). These employees or dependents will have 60 days after receipt of the notice from the employer to elect COBRA coverage (but coverage would be prospective only, not retroactive to the date coverage was lost). Essentially, eligible former employees and dependents will get COBRA coverage for free, with the employer recovering the cost as a credit against their quarterly payroll tax payments. The premium assistance will terminate on the earliest of the date that the employee/dependent exhausts COBRA eligibility; becomes eligible for coverage under another group health plan or Medicare; or September 30, 2021.
The Congressional Budget Office (CBO) estimated the impact of the COBRA premium subsidy based on a prior version of the bill, which provided for an 85% rather than 100% subsidy. At this lower level, the CBO estimated that 2.2 million people who would not have otherwise taken COBRA would enroll, for a total of 3 million COBRA enrollees. It is likely that at the 100% subsidy, this number will increase.