Many employers are facing a looming deadline. By May 31, 2021, they must notify eligible employees and former employees about their new rights to subsidized COBRA coverage under the American Rescue Plan, which was signed into law by President Biden in March. However, many of these individuals may have additional coverage options available, including enhanced premium tax credits for Affordable Care Act marketplace plans. This blog post discusses factors to consider when deciding between these coverage options.

What is COBRA?

The Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 requires certain employers to offer continued enrollment in their group health benefits to employees and their dependents after certain “qualifying events” that would have otherwise ended access to these benefits. COBRA applies to private-sector employers with 20 or more employees and state and local government employers. Small employers with 19 or fewer employees are not subject to this federal law but might be subject to similar state laws, sometimes referred to as “mini-COBRA” laws in 40 states and the District of Columbia.

Qualifying events include job loss (for reasons other than gross misconduct), reduction in work hours, aging out of parents’ insurance, death, divorce, or the covered employee becoming eligible for Medicare. In general, enrollees have 60 days from the date of the qualifying event to opt into COBRA continuation coverage, which then lasts for 18 or 36 months depending on the type of qualifying event. For job loss and reduction of hours, the COBRA coverage period is 18 months, which in very limited circumstances can be further extended.

COBRA enrollees can be responsible for the entirety of their premiums, including the portion their employer used to contribute, as well as a 2 percent additional charge for administrative costs. In 2020, employers paid on average 83% of an active employee’s premium and 74% of the total family premium. With employer-sponsored insurance costing about $7,000 for individuals and $20,000 for family coverage, most people can’t afford it without employer contributions. Once those end, and the COBRA enrollee must pick up the full cost, all but the wealthiest or sickest individuals generally conclude the premiums are prohibitive. Not surprisingly in 2017, only 130,000 of 11.5 million unemployed non-elderly adults were covered through a COBRA plan.

American Rescue Plan’s COBRA Subsidies

In response to the high levels of unemployment caused by the COVID-19 crisis, Congress enacted the American Rescue Plan (ARP). In addition to other key relief measures, the ARP establishes a 100% COBRA premium subsidy for those who have been laid off or have had their hours reduced. These subsidies are only available for the coverage period between April 1 and September 30, 2021. The ARP also allows those who missed the 60-day window to opt into COBRA continuation coverage to enroll in COBRA up to 60 days after they are notified of the availability of the subsidies under the ARP.

Which Should You Choose – COBRA or a Marketplace Plan?

There are a several factors to consider when choosing between COBRA continuation coverage and a marketplace plan. First, make sure you are eligible for COBRA coverage in general and the ARP’s COBRA subsidies:

• If you work for an employer with 19 or fewer employees and your state does not have a mini-COBRA law, you are likely ineligible for COBRA coverage and ARP COBRA subsidies.
• If your COBRA qualifying event is anything other than an involuntary job loss (for reasons other than gross misconduct) or reduction in work hours, you are ineligible for ARP COBRA subsidies.
• If you lost your job or your hours were reduced over 18 months ago, you are ineligible for COBRA coverage and ARP COBRA subsidies.
• If you have an offer of health benefits from a new employer or your spouse’s employer, you are ineligible for ARP COBRA subsidies.

Even if you don’t fall into the above categories and are eligible for ARP COBRA subsidies, keep in mind that these subsidies are only available between April 1 and September 30, 2021. After September 30, 2021, you will have to pay the full COBRA premium or find a new plan, either through another employer or through the marketplace. Note, however, that the federal government now allows you to switch to a plan on Healthcare.gov once your COBRA subsidies end. States that run their own marketplaces must also allow enrollees to switch to a marketplace plan once COBRA subsidies end.

Before making a decision on the right plan for you, it is important to see what kind of premium tax credits would be available to you if you were to choose a marketplace plan instead. The Affordable Care Act instituted premium subsidies—premium tax credits (PTCs)—for those whose household income falls between 100 and 400% of the federal poverty level. The amount of PTC an enrollee is eligible for is calculated as a percentage of the household income that that the individual or family is expected to contribute towards premiums. For the 2021 and 2022 plan years, the American Rescue Plan further expands these PTCs in the following ways:

• For those between 100 and 150% of federal poverty level – reduces premium contribution for a benchmark plan to 0%.
• For those between 150 and 400% of federal poverty level – increases PTC amounts by reducing the percentage of income enrollees are expected to contribute towards premiums for a benchmark plan.
• For those over 400% of federal poverty level – eligible for PTC and premium contributions for a benchmark plan are capped at 8.5% of their household income.
• For those who receive or are eligible for at least one week of unemployment benefits in 2021, regardless of income – allows them to enroll in a $0 premium plan that comes with very low deductibles and cost-sharing.

Please note that those currently employed by an employer offering COBRA continuation coverage with premium assistance, like those whose qualifying event was a reduction in hours, are eligible to enroll in a marketplace plan but will be ineligible for a subsidy or PTC for a marketplace plan as long as the employer offers COBRA coverage with premium assistance.

COBRA might be right for those who want to stay on their employer’s plan until September 30, 2021 in order to either have continued access to a doctor or other provider, or to ensure that they do not lose any contributions towards their deductible and maximum out-of-pocket costs by switching insurers.

COBRA might also be an option for those who do not have access to a zero- or low-dollar premium plan in the marketplace. It is important to note that once someone elects COBRA with the ARP COBRA subsidies, they will not be eligible for APTCs in the marketplace until their ARP COBRA subsidies expire. Once ARP COBRA subsidies end, however, those who opted for COBRA using the ARP COBRA subsidies can switch to a marketplace plan (with PTCs) if they are otherwise eligible, but any contributions they made to their deductible or out-of-pocket maximum will not be carried forward.

For those looking for more information, the U.S. Department of Labor has announced that it will be hosting a webcast to discuss workers’ rights with respect to COBRA subsidies on May 26, 2021.