Legal Blog

The American Rescue Act Part 3: COBRA Changes Affecting Notices, Terminations and Severance Agreements

As mentioned in part one and two of this blog series, employers should be aware of a number of key provisions under Biden’s new stimulus bill, the American Rescue Plan Act (ARPA). I’ve provided summaries of some of the most significant in this three-part series. This is part three, and the final part of the series ,and where I discuss changes to COBRA affecting notices, terminations and severance agreements.

COBRA Changes Affecting Notices, Terminations and Severance Agreements

Under ARPA, benefit continuation is no longer at the employee’s sole expense under COBRA. Rather, there is a new COBRA premium subsidy that pays for 100 percent of the applicable COBRA premium for eligible individuals. From April 1 through Sept. 30, employees who are involuntarily terminated or whose hours are reduced, can sign up for COBRA coverage and pay no premiums for up to six months. Employers will pay the full cost of the premiums, then obtain reimbursement through payroll tax credits. Note that employees who resign are not eligible. Also, the subsidies stop when an employee becomes eligible for other group health plan coverage or Medicare.

In order to comply with the law, employers need to identify premium subsidy eligible individuals, and contact previously terminated employees not currently enrolled in COBRA but who are eligible for the premium subsidy. This is significant as it applies to employees who were involuntarily terminated in the past 18 months. Finally, review and potentially modify existing COBRA notices, severance agreements and termination notices, and comply with notice requirements.

Best Practices Tip: Employers need to be aware of who qualifies for this benefit and be mindful that if an employee is eligible for this benefit under the law, it cannot be used as consideration in a severance or release agreement. Also, this has the potential to affect not only severance agreements, but your standard termination letters and, certainly, COBRA notices. So, do a comprehensive review of those documents now to ensure that you are compliant.

To read part one of the series where I  discussed expanded qualifying reasons for paid sick and emergency family leave click here.

For assistance or questions on this or any other legal matter, please contact Katharine Batista at or (267) 338-1319.


Ms. Batista is an employment & labor attorney who provides businesses with advice and risk mitigation strategies, and zealous representation in litigation. She frequently represents businesses in the hospitality, financial services, automotive dealership, engineering and architecture and healthcare industries. Specifically, Ms. Batista successfully defends employers against claims of discrimination and harassment, retaliation, wrongful termination, and wage and hour violations. Ms. Batista also commonly represents her clients in actions involving employee mobility and trade secret theft. Employment and labor law is ever-changing. Employers need to feel secure in how they manage their employees so they can focus on their business. Ms. Batista affords her clients that security.






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