How Does the COBRA Subsidy Affect You?

If, as a company, you offer a group health plan, then you will want to read on. The American Rescue Plan Act of 2021 includes a subsidy for employees who have lost health coverage and elect a continuation of coverage through COBRA. This is great news for eligible individuals, but what does it mean for you? We’re going to review some key points to get you started:

  1. Who is eligible? An eligible individual will be someone who is generally eligible for COBRA, loses their group health coverage due to reduction in hours or involuntary termination, and is not eligible for any other group health coverage or Medicare.
  2. How does the subsidy work? This subsidy will cover the entire COBRA premium costs from April 2021 through September 2021, so the individual will not have to pay coverage premiums during these months. 
  3. Who pays the premium? The employer will pay or waive the premium for the eligible individual each month. Employers can then claim the subsidy amount as a credit on their quarterly return using Form 941. This credit also applies to “mini-COBRAs”. This credit is 100% refundable!
  4. Is the subsidy automatic? No. You must notify all potentially eligible individuals of the new COBRA subsidy. As an employer who falls under federal COBRA guidelines, you will want to contact your broker, carriers, and COBRA administrator to understand your next steps. 

COBRA provides former employees the right to temporarily continue health coverage at group rates. The coverage is typically paid for by the individual at 100%, so this subsidy could provide some much-needed relief for those laid off due to the pandemic. Allowing businesses to claim a fully refundable tax credit ensures employers are not holding the burden of this subsidy. The newly released draft of Form 941 already includes the option to take this credit. Need help filing your quarterly return? At IOOGO, we are here to help you claim every available credit. Contact us today!

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