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On April 7, 2021, the U.S. Department of Labor (DOL) issued eagerly anticipated guidance on administering COBRA subsidies under the American Rescue Plan Act of 2021 (ARPA). The guidance includes Frequently Asked Questions (FAQs) and various Model Notices and election forms implementing the COBRA Premium Assistance provisions under ARPA, while also announcing the launch of a page dedicated to COBRA Premium Subsidy guidance on its website.
Since ARPA was enacted, employers have been preparing to comply, albeit with many open questions. ARPA requires that full COBRA premiums be subsidized for “Assistance Eligible Individuals” for periods of coverage between April 1, 2021, through September 30, 2021. While this guidance answers important questions on the administration of the subsidies, it does not address many other details on the minds of employers. For example, this guidance does not cover important nuances such as what is an “involuntary termination” in order to qualify for subsidized coverage, how existing separation agreement commitments to subsidize COBRA should be viewed, or details on how the corresponding payroll tax credit will work.
The FAQs are largely directed to individuals and focus on how to obtain the subsidy and how subsidized coverage fits with other types of health coverage that may be available, including Marketplace, Medicaid, and individual plan coverage. We hope that employer directed guidance will follow to fill in the gaps.
Employers will be happy to know that the FAQs confirm a few points that will impact administration. First, eligibility for coverage under another group health plan, including that of a spouse’s employer, will disqualify the employee from the subsidy. Employees must certify on election forms that they are not eligible for such coverage and will notify the employer if they subsequently become eligible for coverage (individual coverage, such as through the Marketplace or Medicaid, will not disqualify an otherwise eligible individual from subsidized COBRA). Failure to do so will subject the individual to a tax penalty of $250, or if the failure is fraudulent, the greater of $250 or 110% of the premium subsidy. The availability of other coverage (which the employer may not know about) does not impact the employer’s initial obligation to identify potential Assistance Eligible Individuals and provide the required notices and election forms.
Soon after enactment, there were also questions circling about whether ARPA applied to small employer plans not subject to COBRA, but rather state “mini-COBRA” laws. The FAQs confirm that the subsidy also applies to any continuation coverage required under state mini-COBRA laws but also notes that ARPA does not change time periods for elections under State law. Further guidance would be welcome on obligations related to small insured plans. The FAQs also confirm that plans sponsored by State or local governments subject to similar continuation requirements under the Public Health Service Act are covered by the ARPA subsidies.
One area that has caused great confusion is how the right to retroactively elect COBRA coverage (to the date active coverage was lost) due to the DOL’s extended deadlines fits with this new election right. While there is more to come on this, the DOL helpfully confirmed that these are two separate rights and thankfully, the FAQs note that the extended deadlines do not apply to the 60-day notice or election periods related to the ARPA subsidies.
The most significant part of the guidance (that we knew was coming but are still happy to see sooner rather than later) are the Model Notices and election materials. The guidance package confirms that employers have until May 31, 2021, to provide the notices of the opportunity to elect subsidized coverage and individuals have 60 days following the date that notice is provided to elect subsidized coverage. Individuals can begin subsidized coverage on the date of their election, or April 1, 2021, as long as the involuntary termination or reduction in hours supporting the election right occurred before April 1, 2021. As previously noted, in no way do these timeframes extend the otherwise applicable 18-month COBRA period.
The Notices include an ARPA General Notice and COBRA Continuation Coverage Election Notice, to be provided to all individuals who will lose coverage due to any COBRA qualifying event between April 1 and September 30, 2021, and a separate Model COBRA Continuation Coverage Notice in Connection with Extended Election Periods, to be provided to anyone who may be eligible for the subsidy due to involuntary termination or reduction in hours occurring before April 1, 2021 (i.e., generally involuntary terminations or reductions in hours occurring on or after October 1, 2019).
Plans will also have to provide individuals with a Notice of Expiration of Period of Premium Assistance 15-45 days before the expiration of the subsidy — essentially explaining that subsidies will soon expire, the ability to continue unsubsidized COBRA for any period remaining under the original 18-month coverage period and describing the coverage opportunities available through other avenues such as the Marketplace or Medicaid. Employers are highly encouraged to use the DOL’s model notices without customization except where required to insert plan or employer specific information.
With the release of the model notices, employers and COBRA administrators now largely have the tools to administer this new election right. The FAQs remind us that the DOL will ensure ARPA benefits are received by eligible individuals and employers will face an excise tax for failing to comply, which can be as much as $100 per qualified beneficiary (no more than $200 per family) for each day the employer is in violation for the COBRA rules. Accordingly, employers will want to begin or continue conversations with COBRA administrators to ensure notices are timely provided to the right group of individuals.
One of Congress’s goals in the American Rescue Plan Act of 2021 (ARPA) was to provide enhanced unemployment benefits and continued healthcare coverage to employees who lose their jobs as a consequence of the COVID pandemic. The latter goal was achieved by the federal government agreeing to pick up the cost of such individuals’ COBRA coverage for up to six months beginning April 1, 2021. Individuals who voluntarily terminate their employment are not entitled to the COBRA subsidy.
Administering and communicating the new COBRA subsidy will pose challenges to employers. Here are the key features of the subsidy:
The subsidy automatically commences on April 1 for eligible individuals who are receiving COBRA coverage on that date. If a qualified beneficiary paid for COBRA coverage during the subsidy period, they must be reimbursed for such payment within 60 days after making the payment.
Employers, at their option, can elect to give qualified beneficiaries the opportunity to change their current coverage and choose different coverage as long as the cost of the new coverage does not exceed the cost of their current coverage. There is no requirement that employers provide this option to eligible individuals currently receiving COBRA coverage.
In contrast, employers must give former qualified beneficiaries who previously waived or dropped their COBRA rights but would be eligible for the subsidy if they had elected and maintained such coverage (i.e., those qualified beneficiaries who as of April 1, 2021, would still have time left in their original COBRA coverage period) the opportunity to take advantage of the subsidy. This will be an administrative challenge because it means employers will have to (i) identify such qualified beneficiaries, (ii) notify them of the availability of the subsidy, and (iii) provide a window for them to elect COBRA coverage. Unlike the current COBRA rules, which generally would require the coverage to commence retroactively to the date coverage was lost, this special election allows qualified beneficiaries to commence their coverage on April 1. The period for making this special election begins on April 1 and ends 60 days after the date the qualified beneficiary is provided the notification.
The COBRA subsidy ends before the expiration of the six-month period if the individual’s maximum COBRA coverage period ends earlier or the individual becomes eligible for other group health coverage or Medicare. Individuals receiving the COBRA subsidy must notify the plan administrator when they become eligible for other group health or Medicare coverage, and might be subject to penalties if they fail to do so. The ARPA does not explain whether eligibility for other coverage requires actual enrollment in, or mere eligibility to enroll in, other coverage.
The ARPA requires employers to update their current COBRA forms to explain the special subsidy rights and include other specified information. In addition to using the updated forms for those who become eligible for COBRA on or after April 1, the new forms have to be provided to qualified beneficiaries who became eligible for COBRA coverage before April 1 (assuming their original COBRA coverage period did not end before April 1). The Department of Labor (DOL) is required to provide model language for the election notice by April 10.
In addition, the ARPA creates a new notification requirement. Specifically, qualified beneficiaries who qualify for the subsidy must be provided a “Notice of Expiration of Period of Premium Assistance” that explains the date when their subsidy will end and certain other specified information. Generally, this new notice must be provided no more than 45 days before and no less than 15 days before the date the subsidy will end. The notice does not have to be provided to qualified beneficiaries whose subsidies end because their COBRA period ends. The DOL is required to provide a model notice for this requirement by April 25.
Penalties apply if these notices are not provided, so employers should be careful to ensure their notices are updated to include all of the required information and are distributed in a timely manner.
In sum, employers will have to develop a game plan for complying with the new COBRA subsidy. Challenges include identifying all of the eligible individuals who are entitled to the subsidy, updating COBRA forms, and providing timely notifications. Employers’ communication strategy also should take into account the extended election periods individuals have for electing COBRA coverage under prior DOL and Treasury guidance.