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What the 100% COBRA Subsidy Means to SMBs

Thursday March 25th, 2021

Estimated time to read: 2 minutes, 45 seconds


The pandemic has taken a toll on businesses across the country – and both employers and employees are feeling the impact. According to isolved data, 55 percent of employers have laid off or furloughed employees over the last year. What’s more, many employees who didn’t lose their jobs have still reported negative effects like pay cuts and a reduction in hours. 

While there have been multiple relief bills passed to support those who have been impacted by the pandemic, the American Rescue Plan Act (ARPA) sets a whole new precedent in terms of healthcare according to isolved’s Chief People Officer Amy Mosher. This is because the legislation includes a provision in which the federal government will pay 100 percent of COBRA insurance premiums during a specified period of time for assistance eligible individuals (AEIs). 

“At 100 percent subsidy, employers are assured that individuals, if they qualify, will be able to continue coverage at no cost if jobs are eliminated. The subsidy could cover premiums from April 1st to September 30th if the former employee maintains eligibility,” said Mosher. “This is typically a substantial amount of money for a former employee to pay especially in the event they no longer have an income. This is really transformative healthcare availability for our nation.”

How Can Small Businesses Prepare?*

For small businesses (SMBs), this means that there will likely be a big change in COBRA elections in the coming months. Mosher notes that under normal circumstances, just one out of every 10 involuntarily terminated employees typically elects COBRA. Under this relief, employers will likely see that number increase significantly. 

AEIs, or employees who have been involuntarily terminated or had a reduction in hours affecting benefits eligibility, will have the option to receive premium subsidies as long as they are still eligible to elect COBRA and they are not eligible for coverage under any other group health plan or Medicare. This relief may apply to terminated employees who are still within their maximum coverage window (often 18 months), even if they had not previously elected to continue coverage. This will undoubtedly result in an increase in administrative duties to ensure compliance so that tax credits can be claimed.

“Employers will need to tell everyone who is eligible for the COBRA subsidy, which means that there will be huge amounts of paperwork from an administrative perspective,” said Mosher. “I recommend that business leaders lean on their COBRA administrator to ensure often tricky compliance requirements for notifications are met. These experts will be able to ensure everything is managed properly, so it’s important to get the service that you need out of them.”

While leveraging partners like brokers and consultants can help businesses sort through administrative complexities and ensure all individuals who qualify are provided with the correct notices and information, isolved Benefit Services’ Regional Vice President Chris Edick notes that the situation is still fluid. This is because the Department of Labor has 30 days to issue guidance from the day that the law was signed, which was March 11, 2021. However, looking back at processes used during the American Recovery and Reinvestment Act (ARRA) may be a good point of reference before the guidance is released.

“Back in 2009, there was a similar situation during the great recession when ARRA was passed. ARRA included a subsidy of 65 percent to any qualified individual, which was retroactive,” said Edick. “At isolved Benefit Services, our plan is to take the best of what worked during ARRA and leverage our newer technology and processes to make it a pleasant experience for clients and brokers. We will also be creating and updating a suite of reports that will support our clients through this effort, both in identification of assistance eligible individuals and with premium and tax subsidy credit reports.”

Unpacking All of ARPA

There are several other provisions within ARPA that employers should be aware of outside of the COBRA subsidy, including a temporary increase to dependent care flexible spending account maximums and the option to extend paid sick and family leave with eligibility to receive tax credits per the Families First Coronavirus Act (FFCRA). Understanding everything within the 242-page law is important for ensuring compliance.

By working with a trusted human resources (HR) partner, businesses are better positioned to quickly navigate updates like these and remain compliant throughout every step of the process. The result? Less internal headaches and more time available for employees to focus on strategic initiatives that are key to driving business growth.


To learn more about managing COBRA changes in the ARPA, watch isolved Benefit Services’ on-demand webinar.


* This blog is not legal advice. Please seek proper legal advice.  


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