The American Rescue Plan Act (“ARPA”) was enacted Thursday, March 11, and will have a major impact on employee health and welfare benefit plans.
In part, the ARPA brings back the requirement to provide COBRA subsidies, although this time premiums are 100% subsidized.
Background
Do you recall back in 2009 when a percentage of COBRA premiums were reimbursed by the government? We called these ARRA COBRA subsidies. The American Recovery and Reinvestment Act of 2009 (ARRA) reduced the COBRA premium in some cases. The premium reductions were available to certain individuals who experienced qualifying events that were involuntary terminations of employment during the period beginning with September 1, 2008 and ending with December 31, 2009. If one qualified for the premium reduction, s/he needed only pay 35 percent of the COBRA premium otherwise due. The premium reduction was available for up to nine months.
Well, COBRA subsidies are back! And employers must pay close attention.
ARPA of 2021: 100% Subsidy
Under the American Rescue Plan Act (“ARPA”), any assistance eligible individual shall be treated as having paid the full amount of the COBRA premium from April 1, 2021 through September 30, 2021.
Moreover, any assistance eligible individual (“AEI”) may, within 90 days after notice, elect to switch from one group health plan offered by the plan sponsor (i.e., employer in most cases) to another coverage offered by the plan sponsor, if:
- the employer permits the switch;
- the premium for such different coverage does not exceed the premium for coverage in which the individual was enrolled at the time of the qualifying event;
- the different coverage is also offered to similarly situated active employees of the employer; and
- the different coverage is not only for excepted benefits, a qualified small employer HRA, or an FSA.
However, the 100% subsidy is not available to AEIs for months beginning on or after the earlier of:
- the date the individual is eligible for coverage under another group health plan (other than excepted benefits only, qualified small employer HRAs, or FSAs);
- the date the individual is eligible for Medicare; or
- the date COBRA expires, which is the earlier of: (a) the date the maximum COBRA period ends; or (b) the date the maximum COBRA period should have ended if it had been originally elected or not discontinued.
AEIs must notify the group health plan when they are no longer eligible for subsidies due to being eligible for other group health plans or Medicare.
Assistance Eligible Individuals (AEIs) & New Election Rights
AEIs include individuals who, from April 1 through September 30, 2021, are COBRA qualified beneficiaries who:
- are eligible for COBRA due to involuntary termination (for reasons other than the employee’s gross misconduct) or reduction in hours; and
- elect such coverage.
However, with regard to COBRA election periods, for individuals who do not have a COBRA election in effect as of April 1, 2021 (but could have had they elected COBRA or not dropped COBRA coverage early), the ARPA allows such individuals to elect COBRA any time beginning April 1, 2021 and ending 60 days after receiving notice that they are allowed to do so…
For these new elections, COBRA will begin on or after April 1, 2021 and cannot extend beyond the original date of COBRA had it originally been elected or not discontinued.
New Notice Requirements
Premium Assistance Notice
For AEIs who become entitled to elect COBRA at any point from April 1 through September 30, 2021, the COBRA election notices must include the following:
- the availability of the premium assistance if eligible;
- the option to enroll in different coverage (if the employer permits);
- the forms necessary to establish eligibility for the premium assistance;
- the name, address, the phone number to contact the plan administrator (or TPA, etc) regarding the premium assistance;
- a description of the extended election period;
- a description of the qualified beneficiary’s obligation to notify the plan of their eligibility for other group health plan coverage or Medicare and the penalty if they fail to do so (which, for intentional failures, is sizable under the ARPA); and
- a description of the right to the subsidized premium as well as the conditions for receiving it.
This can be accomplished by amending the current notices or including a separate document with the notices to describe the above.
Model notices are to be provided by the Department of Labor within 30 days of the ARPA’s enactment.
Re-Opened Election Rights Notice
For AEIs who previously failed to elect COBRA or discontinued it, but may now elect under the extended election period, the above notice must be provided within 60 days of April 1, 2021.
Subsidy Ending Notice
Additionally, the plan administrator (i.e., the employer or TPA in most cases) must provide clear notice when the premium assistance expiration date is approaching, as well as notice that the individual may be eligible to continue COBRA without the premium subsidy or other group health plan coverage (if eligible).
Notice must be provided between 45 days before such expiration and ending 15 days before the expiration date. This notice requirement does not apply if the individual will be losing the subsidy due to being eligible for another group health plan or Medicare.
Here again, the Department or Labor will be providing model notices, but within 45 days of the ARPA’s enactment.
COBRA Penalties
Failure to provide these notices is deemed a failure to meet the COBRA notice requirements. As you may know, failure to provide accurate and timely COBRA notices come with hefty penalties, so compliance is imperative.
Employer Tax Credit
In most cases, employers will be responsible for initially funding these COBRA subsidies and will receive a payroll tax credit for doing so. These tax credits are calculated per quarter, and credits provided may not exceed the Code section 3111(b) taxes imposed on wages paid for employment of all the employer’s employees. However, if the amount of the credit does exceed this amount, it is treated as an overpayment which will be refunded. Additionally, credits may be advanced.
Conclusion
Due to severe penalties for COBRA noncompliance, it is incredibly important for employers to act swiftly to ensure notices, procedures, plans and other employee communications are updated quickly. Coordination with third-party administrators, consultants, and attorneys will also be important to ensure legal and tax compliance. It is also essential to keep in mind the expiration date of these legal changes, so that regular COBRA notices and procedures go back into effect after September 30, 2021.
As you are well aware, the law and guidance are rapidly evolving in this area. Please check with your Fraser Trebilcock attorney for the most recent updates.
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Elizabeth H. Latchana specializes in employee health and welfare benefits. Recognized for her outstanding legal work, in both 2019 and 2015, Beth was selected as “Lawyer of the Year” in Lansing for Employee Benefits (ERISA) Law by Best Lawyers, and in 2017 as one of the Top 30 “Women in the Law” by Michigan Lawyers Weekly. Contact her for more information on this reminder or other matters at 517.377.0826 or elatchana@fraserlawfirm.com.
Brian T. Gallagher is an attorney at Fraser Trebilcock specializing in ERISA, Employee Benefits, and Deferred and Executive Compensation. He can be reached at (517) 377-0886 or bgallagher@fraserlawfirm.com.