Managing Changes in the Workplace- Continuing Health Coverage: COBRA and State Continuation

Updated 8/2/2021

The American Rescue Plan Act (ARPA) that subsidized 100% of the cost of premiums for COBRA continuation coverage for employees will expire on Sept. 30, 2021.

Per the IRS Notice 2021-31, issued on May 18, the Departments of Labor and Treasury issued guidance affecting the expiration of COBRA subsidies. The IRS specified that the subsidy ends on the earliest date of these options:

  • The last coverage period beginning on or before September 30, 2021;
  • The date the individual reaches the maximum COBRA continuation period; or
  • The first period of coverage beginning on or after the first date the individual becomes eligible for another group health plan or Medicare.

Assistance Eligible Individuals (AEIs) must be notified 45 days prior to the expiration of the subsidy. Blue Cross will be notifying these individuals.

Once the subsidy ends, AEIs will be responsible for paying the total cost of their health insurance premiums.


Who is eligible?

Members with group health plans of any size who are subject to COBRA or state continuation, including dental and vision. These assistance-eligible individuals (AEIs) were either involuntary terminated or had a reduction of work hours and includes the total premium costs for employees with family members on their plan.

These AEIs would be allowed to elect subsidized COBRA even if they had earlier declined the COBRA option or had enrolled in COBRA and then dropped it.

Who is NOT eligible?

  • Employees who voluntarily terminated their employment
  • Employees who qualify for another group health plan
  • Employees with a flexible spending arrangement
  • Employees with a qualified small employer health reimbursement arrangement
  • Employees who are eligible for Medicare

The subsidy is funded by the federal government through a refundable payroll tax credit.


All employers will need to:

  • provide assistance-eligible individuals (AEIs) notice requirements
  • verify eligibility and notify Blue Cross via:
    • paper enrollment: If your group currently enroll and make changes via paper, AEIs will need to complete the DOL form and return to Blue Cross.
    • electronic enrollment: If your group currently enrolls electronically through 834, BluesEnroll, etc., you will need to revise the category to alert Blue Cross of the AEIs subject to the COBRA subsidy. To help you with this process, we will be sending you a communication with these revisions outlined. This will be customized based on your existing electronic enrollment set up.

Fully-insured & level-funded groups: Blue Cross will continue to administer COBRA benefits, but the groups are required to file for the premium tax credit. When Blue Cross receives an enrollment notice for an AEI, Blue Cross will stop billing the member and bill the group or third-party administer the full amount of the COBRA premium.

Your group will need to file for the premium tax credit on your quarterly tax filings with the IRS to receive reimbursement for those premiums.

Self-Administering ASOs or ASO groups with a COBRA TPA: Blue Cross will continue to bill fees and claims cost. The process will not change. You and/or the TPA will be responsible for filing for your own tax credit.

ASOs (Blue Cross administers COBRA): Blue Cross will stop billing premium to COBRA individuals and will bill your group for fees for those AEIs. Your group will be responsible for filing your own tax credit.

Minimum Premium & Modified Cost Plus: Will follow the ASOs (Blue Cross administers COBRA) process.

State Continuation: Groups will continue to send a notice of termination to Blue Cross. Blue Cross will continue to administer COBRA benefits and file for the payroll tax credit with the government to receive the subsidy. Groups will continue to send a letter to those members providing their continuation of coverage opportunities.

AEIs will need to answer the eligibility and election questions within the attached form and mail back to Blue Cross. For those currently on state continuation, a letter will be mailed letting the individual know of the tax credit. The AEI will need to answer the eligibility and election questions and return to Blue Cross.

AEIs will continue to receive a premium notice with a $0.00 bill during the period of time they are eligible.

All COBRA groups: Under the ARPA, AEIs are allowed to change health plans if allowed by the group. If you are interested in allowing this, please contact your representative for more information.

Notice Requirements

New AEIs. By May 31, 2021, employers or Blue Cross must notify AEIs who have become eligible for the subsidy of the subsidy’s availability and, if permitted by the employer, the option to enroll in different coverage.

Special Election AEIs. By May 31, 2021, employers or Blue Cross must notify AEIs who are eligible for the special election of the opportunity to elect continuation coverage. Once notified, the 60-day election period begins.

Subsidy Termination. Employers must also notify AEIs when the COBRA subsidy is set to expire no more than 45 days and no fewer than 14 days before expiration. The DOL is expected to provide model language for this notice by April 25, 2021.


On March 13, 2020, COBRA election deadlines were paused for 12 months. In March 2021, the pause was extended another 12 months, or 60 days past the end of the pandemic (whichever is earlier). COBRA eligibility continues for 18 or 36 months depending on the circumstances. A member can claim the subsidy for any remaining COBRA eligibility they have left as of April 1, 2021.

AEIs who timely elect COBRA after April 1, or, in the case of individuals who failed to timely elect COBRA continuation coverage, or who dropped the coverage prior to April 1, make a special election within a new 60-day special election period beginning April 1 and ending 60 days after they have been notified of their eligibility. These AEIs must elect COBRA with subsidy within 60 days of receipt of the new notice and complete the form or they will not receive the subsidy. If they fail to make this election, they will still receive COBRA but not be eligible for the premium tax credit.

An employee who elected or could have elected COBRA as far back as January 15, 2020 could be eligible for the COBRA subsidy. Whether eligible for 18 or 36 months of COBRA, the member would be eligible until at least July 15, 2021.This individual could elect coverage within 60 days of April 1, 2021 and be subsidy eligible. This is true even if the individual previously elected COBRA and dropped or never elected COBRA initially. If a member chooses to do this, their COBRA eligibility still begins as of their last day of group coverage, even though there is a gap.

Example: If a member was terminated from their employment on December 15, 2020, their last day of coverage would be December 31, 2020, and their COBRA eligibility begins January 1, 2021. If that member chooses not to enroll until April 1, 2021, they would only be eligible for 15 months of coverage instead of 18 because 3 months of their coverage lapsed during the gap between the end of group coverage and beginning continued coverage.

For that scenario, the extended election period begins April 1, 2021 and ends 60 days after receipt of a COBRA notice. For those electing coverage based on this extension, the coverage will be effective as of April 1, 2021 but will not extend beyond the maximum coverage period based on the original qualifying event.

State continuation AEIs are not eligible for a delayed or retro enrollment date. Coverage is effective the 1st of the month following the qualifying event if notification is received within 60 days. The ARPA guidelines only allow the refundable tax premium – none of the eligibility extensions apply.

One thought on “Managing Changes in the Workplace- Continuing Health Coverage: COBRA and State Continuation

  1. Thanks for pointing out that I should also look for flexible spending arrangements when it comes to health plans. I’d like to look for a large group health plan in the future because I’d like to start an independent app programing company someday. Assembling a small team that will be working with me will surely need benefits to properly compensate them.

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