The American Rescue Plan (“ARP”) COBRA Subsidy is a comprehensive legislative attempt to address serious problems caused by the COVID-19 pandemic. One of the most important problems it aims to solve is the loss of health insurance many American workers have experienced due to loss of employment.
COBRA continuation coverage allows people who lose coverage under an employer health plan to purchase it through their employer-sponsored plans (for firms with more than 20 workers). Typically, however, COBRA coverage is very expensive: the employee must pay a premium of up to 102 percent of its total cost, including the share formerly paid by the employer.
To address this problem, the ARP, which was signed into law on March 11, 2021, includes a 100 perent COBRA subsidy for certain individuals for up to a six-month period from April 1, 2021 through September 30, 2021. Employers will obtain the subsidy through a payroll tax credit against the employers’ quarterly taxes and will be responsible for paying health insurance carriers for the premiums.
Department of Labor Guidance and FAQ
On April 7, 2021, the U.S. Department of Labor posted model notices and a set of FAQs to help employers comply with the federal COBRA premium subsidy. Below are answers to key questions addressed in the FAQ.
Q1: Which plans does the premium assistance apply to?
The COBRA premium assistance provisions apply to all group health plans sponsored by private-sector employers or employee organizations (unions) subject to the COBRA rules under the Employee Retirement Income Security Act of 1974. They also apply to plans sponsored by State or local governments subject to the continuation provisions under the Public Health Service Act. The premium assistance is also available for group health insurance required under state mini-COBRA laws.
Q2: How long does the Subsidy Last?
The premium assistance can last from April 1, 2021 through September 30, 2021. The period can end earlier if an individual:
• Becomes eligible for another group health plan, such as a plan sponsored by a new employer or a spouse’s employer (not including excepted benefits, a QSEHRA, or a health FSA), or they become eligible for Medicare, or;
• Reaches the end of your maximum COBRA continuation coverage period.
Those who choose to continue COBRA continuation coverage after the premium assistance period may have to pay the full amount of the premium otherwise due. Failure to do so may result in the loss of COBRA continuation coverage.
Q3: Who is eligible for the COBRA premium assistance?
The ARP makes the premium assistance available for “Assistance Eligible Individuals.” An Assistance Eligible Individual is a COBRA qualified beneficiary who meets the following requirements during the period from April 1, 2021 through September 30, 2021:
• Is eligible for COBRA continuation coverage by reason of a qualifying event that is a reduction in hours (such as reduced hours due to change in a business’s hours of operations, a change from full-time to part-time status, taking of a temporary leave of absence, or an individual’s participation in a lawful labor strike, as long as the individual remains an employee at the time that hours are reduced) or an involuntary termination of employment (not including a voluntary termination); and
• Elects COBRA continuation coverage.
Q4: Who is NOT eligible for the COBRA premium assistance?
Individuals are not eligible for the premium assistance if they are eligible for other group health coverage, such as through a new employer’s plan or a spouse’s plan (not including excepted benefits, a qualified small employer health reimbursement arrangement (QSEHRA), or a health flexible spending arrangement (FSA), or if you are eligible for Medicare.
Also, if the employee’s termination of employment was for gross misconduct, the employee and any dependents would not qualify for COBRA continuation coverage or the premium assistance. Employers are typically reluctant to disqualify an individual for misconduct.
Q5: Who is eligible for an additional election opportunity for COBRA continuation coverage?
A qualified beneficiary whose qualifying event was a reduction in hours or an involuntary termination of employment prior to April 1, 2021 and who did not elect COBRA continuation coverage when it was first offered prior to that date or who elected COBRA continuation coverage but is no longer enrolled (for example, an individual who dropped COBRA continuation coverage because he or she was unable to continue paying the premium) may have an additional election opportunity at this time.
Q6: Is the premium free?
Yes. Assistance Eligible Individuals do not have to pay any of the COBRA premium for the period of coverage from April 1, 2021 through September 30, 2021. The premium is reimbursed directly to the employer, plan administrator, or insurance company through a COBRA premium assistance credit. Assistance Eligible Individuals will not need to pay any part of COBRA continuation coverage, including any administration fee that would otherwise be charged.
Q7: Does the ARP impose any new notice requirements?
Yes, plans and issuers are required to notify qualified beneficiaries regarding the premium assistance and other information about their rights under the ARP, as follows:
• A general notice to all qualified beneficiaries who have a qualifying event that is a reduction in hours or an involuntary termination of employment from April 1, 2021 through September 30, 2021. This notice may be provided separately or with the COBRA election notice following a COBRA qualifying event.
• A notice of the extended COBRA election period to any Assistance Eligible Individual (or any individual who would be an Assistance Eligible Individual if a COBRA continuation coverage election were in effect) who had a qualifying event before April 1, 2021.
The ARP also requires that plans and issuers provide individuals with a notice of expiration of periods of premium assistance explaining that the premium assistance for the individual will expire soon, the date of the expiration, and that the individual may be eligible for coverage without any premium assistance through COBRA continuation coverage or coverage under a group health plan.
Q8: Who does not need to receive Notice?
The notice requirement does not include those individuals whose maximum COBRA continuation coverage period, if COBRA had been elected or not discontinued, would have ended before April 1, 2021 (generally, those with applicable qualifying events before October 1, 2019). Unless specifically modified by the ARP, the existing requirements for the manner and timing of COBRA notices continue to apply.
Q:9 When must notice be provided?
Individuals eligible for this additional COBRA election period must receive a notice of extended COBRA election period informing them of this opportunity by May 31, 2021. Individuals have 60 days after the notice is provided to elect COBRA. However, this additional election period does not extend the period of COBRA continuation coverage beyond the original maximum period (generally 18 months from the employee’s reduction in hours or involuntary termination).
Q10: What information must the notices include?
The notices must include the following information:
• The forms necessary for establishing eligibility for the premium assistance;
• Contact information for the plan administrator or other person maintaining relevant information in connection with the premium assistance;
• A description of the additional election period (if applicable to the individual);
• A description of the requirement that the Assistance Eligible Individual notify the plan when he/she becomes eligible for coverage under another group health plan (not including excepted benefits, a QSEHRA, or a health FSA), or eligible for Medicare and the penalty for failing to do so;
• A description of the right to receive the premium assistance and the conditions for entitlement; and
• If offered by the employer, a description of the option to enroll in a different coverage option available under the plan.
Next Steps for COBRA Subsidy
The ARP COBRA premium subsidy imposes new requirements that require action. To start, employers will need to coordinate with their COBRA administrators and identify all terminated individuals who are Assistance Eligible Employees and provide them with the appropriate COBRA notice. It is important to remember that these individuals may include those who previously were eligible for COBRA due to a layoff or reduction of hours and who either did not elect COBRA coverage initially or who dropped COBRA coverage prior to April 1, 2021.
In addition, employers should consider how the new ARP COBRA premium subsidy impacts severance plans and separation agreements that provide paid COBRA coverage as consideration for signing a release of claims. Modifications to these plans and agreements may be necessary.
While the newly released FAQs are helpful, they still leave many unanswered questions. For example, the FAQs do not address whether the ARP COBRA subsidy will cover medical, dental, and vision coverage or just medical coverage. Thus, employers should continue to monitor the Department of Labor and look out for any published developments.
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