In March 2021, The American Rescue Plan Act (ARPA) was signed into law by President Biden. Under ARPA, COBRA premiums are covered at 100% to help Assistance Eligible Individuals (AEI) continue their health benefits. The premium assistance is also available for continuation coverage under certain state laws. The premium assistance applies to periods of coverage on or after April 1, 2021 through September 30, 2021.
Who is considered an AEI?
Assistance Eligible Individuals (AEIs) are employees who experienced an involuntary separation or reduction in hours. These individuals also have an extended special election period as long as they are within what would have been their 18-month COBRA coverage period had they elected. This means that employees that experienced an involuntary separation or reduction in hours on or after October 1, 2019 may be an AEI even if they previously never elected COBRA coverage or terminated their elected coverage prior to April 1, 2021. Employees eligible for Medicare or eligible for coverage under another group health plan, such as a plan sponsored by a new employer or a spouse’s employer do not qualify as AEIs. If you are determined to be an AEI, you will receive an eligibility notice from your COBRA administrator no later than May 31, 2021.
If you have questions about your eligibility, please contact your COBRA administrator directly for more information.
Who is responsible for paying the subsidy and who is receiving it?
The employer, plan administrator, or insurance carrier is responsible for paying the subsidy. The subsidized premium is then reimbursed directly to the employer, plan administrator, or insurance company through a COBRA premium assistance tax credit.
Employers subject to federal COBRA continuation coverage are responsible for covering the subsidy and filing for the subsequent tax credit. Typically this includes employers with 20 or more employees. If the company is a part of a controlled group, the entire controlled group is assessed in employee count.
If your company is providing access to medical insurance through Justworks with Aetna, UnitedHealthcare (UHC), or Kaiser Permanente (KP), our COBRA provider handles administration for the policy. As such, Justworks will be paying the premiums for AEIsand will not charge you. Justworks will also claim the applicable premium assistance tax credit. This will in turn save your company time and effort as you will not have to pay COBRA subsidy premiums and wait for a credit.
What if you don’t offer medical insurance through Justworks?
Employers offering health insurance and COBRA continuation outside of Justworks should consult with their carrier and/or COBRA administrator to determine which entity will be responsible for covering the subsidy and filing for the tax credit.
Whether you offer medical insurance through Justworks or not, please do not file Form 7200. As your PEO, Justworks is responsible for claiming the tax credit portion of the subsidy on your behalf, which means you do not need to file Form 7200.
What if your company is not subject to federal COBRA law?
Employers that are not subject to federal COBRA laws but are subject to state COBRA laws, should check with their insurance carrier and COBRA administrator. If the carrier pays the subsidy, the carrier will also claim the applicable tax credit.
Information on State COBRA requirements can be found in the resources below:
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.