Employee Benefits Annual Limits Estimated Medical Cost Impact of ARPA’s COBRA Subsidies

On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 (ARPA) into law. Included in the law is a provision for COBRA subsidies to employers related to participants who were or will be involuntarily terminated and COBRA-eligible between April 1, 2021, through September 30, 2021. Notices must be provided to eligible participants and there are rules regarding eligibility for subsidies. For more information on the compliance issues and notice requirements regarding ARPA’s COBRA subsidies,please refer to NFP’s Industry Insights:

Now that employers have a better understanding of the notice requirements and eligibility rules, many are beginning to look at the impact these additional COBRA participants may have on health plan budgets. According to the 2009 Spencer’s Benefits Report, on average, a COBRA participant costs 54% more than an active participant and, historically, only 10% of terminated employees elect COBRA (with cost being the primary deterrent). Since the subsidies provided by ARPA will allow employees who were or will be involuntarily terminated to continue coverage at no cost, it is reasonable for employers to be concerned. Purely from a cost perspective, a range of outcomes is possible — including scenarios with positive budget outcomes.

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