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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.
Last week the Department of Health and Human Services, DOL and the IRS extended deadlines for multiple items related to health plan administration. We don’t expect a huge influx of issues from the changes. However, you should be aware so you don’t inadvertently misinform your employees.
There were changes made regarding COBRA premium payments and election timeframes but since we have addressed those in a previous post, we won’t address it here. COBRA administration is outsourced and those impacted are no longer employees so you can direct their questions to your COBRA administrator or to our office. We’ll also skip the changes made to claims and appeals as that won’t apply to everyone. That leaves the changes to your benefit program.
As you are aware, most of the carriers have reduced or even eliminated the minimum number of hours a previously full-time employee must work to be covered by your plan. Meaning, we can offer coverage to furloughed employees or those that have otherwise reduced hours to below the full-time requirements.
In addition, the agencies, have decided to disregard the Outbreak Period (the time period between March 1st and at least 60 days after the announced end of the COVID 19 National Emergency) when establishing a deadline to request enrollment in coverage for certain qualifying events. Meaning, the agencies, added a “pause” to the time frame required for employees to notify you about special enrollment periods, such as marriage or birth of a child. We are not able to determine the exact end date of the Outbreak Period yet as that is based on an end to the National Emergency (and that had yet to be determined).
For our examples, we’ll assume the COVID 19 National Emergency ends for the country on June 30th. This would make the Outbreak Period March 1st to August 29th (60 days following June 30).
Example 1 – Sally has a baby on March 3rd. Normally, she would have 30 days to notify us that she would like to add the baby. However, you are being instructed to disregard the Outbreak Period, therefore she has until September 28th (30 days from the end of the Outbreak Period) to let us know her desire to add her child.
Example 2 – Tom gets married June 1st. He will have until September 28th to let us know if he intends to enroll his spouse.
Under these examples, the dependents would be enrolled back to their original eligibility date and the employee would owe those back premiums. I don’t expect this to become a big issue, however, depending on the employees circumstances it could. The drawback to employers, other than the inconvenience, is this could have an impact on the group claims. Normally Tom and Sally would only have 30 days to enroll their dependents. With the extensions, employees have information about any issues or medical expenditures that have already happened along the way. Carriers will be responsible to back up, enroll the dependent, and pay any claims incurred.
Please let us know of any questions you have.