New Law Alert: Employer-Paid COBRA Benefits

One of the most difficult things about being laid off is the loss of medical benefits. Unemployment covers wages, but the cost to continue medical benefits can be thousands of dollars a month.

Under the recently passed American Rescue Plan Act (ARPA), 100% of premiums for COBRA or state continuation coverage must be paid by the employer beginning April 1, 2021. The benefit will last for six months maximum and has a retroactive back to before the COVID-19 outbreak began. Depending upon the employer location, if it is state continuation vs. COBRA then the retroactive period may be greater. However, at a minimum, it is an 18-month look-back, i.e. November 2019.

This new law also applies to employees who lose medical benefits when hours are reduced from full-time to part-time. Employees who did not initially elect COBRA or health continuation also get a “second bite at the apple” and can claim this new benefit.

Employers should know that this is not a penalty. It is a federally supported subsidy. The federal government will reimburse employers, dollar for dollar, against their quarterly payroll tax obligations. (Employers may need to pay for it later through personal and/or corporate taxes, but that’s a different subject).

Not every employee is eligible. Like employment benefits, employees whose job loss was voluntary or the result of gross misconduct are ineligible. In addition, employees who are eligible for another group health plan (i.e. spouse’s plan) or Medicare are not covered.

Employers must update their notices for newly eligible employees with language describing the subsidy for those who trigger a continuation right during the six-month subsidy period. Employers should also give notice to all former employees during the look back period (at least 18-months) before May 31, 2021.

Profile-2-1-300x187

Daniel Thompson is an employment lawyer with Davis & Wojcik APLC, a Southern California based law firm with offices located in Temecula and Hemet. He is also the author of Land of Liability: A Guide for California Employers. He can be reached at (951) 652-9000.

Land-of-Liability-Cover-5x8-jpg-188x300

Contact Information