As explained in previous Client Alerts, the American Rescue Plan Act of 2021 (“ARPA”) requires that employers provide 100% COBRA subsidies to certain assistance eligible individuals from April 1, 2021 through September 30, 2021. Not only will COBRA be fully paid for these individuals during this time period, but eligible individuals who had previously declined COBRA (or who had elected COBRA and dropped it) have a second chance to elect and take advantage of the subsidized COBRA coverage. Notices of such subsidies and new election rights are due by May 31, 2021, so time is of the essence.
Summary of COBRA Subsidy
Under ARPA, any assistance eligible individual (“AEI”) shall be treated as having paid the full amount of the COBRA premium from April 1, 2021 through September 30, 2021.
The Department of Labor recently issued additional guidance, FAQs, as well as the model notices, found here:
- COBRA Premium Subsidy dedicated page, available here;
- FAQs, available here;
- Model Notices:
Assistance Eligible Individuals
AEIs include individuals who, from April 1 through September 30, 2021, are COBRA qualified beneficiaries and:
- 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, 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. Penalties will ensue if they do not.
New Election Rights
For individuals who do not have a COBRA election in effect as of April 1, 2021 (but could have had they initially 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. These notices must be provided to AEIs by May 31, 2021.
Basically, any individual who was eligible for COBRA due to involuntary termination (except for gross misconduct) or reduction in hours after October 1, 2019 could be an AEI. Therefore, it is imperative to determine who these individuals are and to provide them the requisite notice. In some cases, an individual may only be an AEI for a month or two depending on when the original COBRA maximum period ends.
These new COBRA elections 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. The Department of Labor released FAQs which clarify that an AEI can elect COBRA prospectively after receiving the subsidy notice or can elect it retroactively to April 1, 2021. See Q5 of the FAQs.
Any 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 a health FSA.
See Q15 of the FAQs.
New Notice Requirements
Along with traditional COBRA requirements, plan administrators (i.e., employers or TPAs in most cases) must provide clear notices of the ARPA’s COBRA premium assistance / subsidy requirements, new election rights, as well as notices of when the subsidy will expire.
Premium Assistance Notice for New COBRA Qualified Beneficiaries
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.
The DOL Model General Notice and Election Notice are found here.
The “Summary of the COBRA Premium Assistance Provisions under the American Rescue Plan Act of 2021,” which contains information on the subsidy as well as the forms to elect or discontinue the premium assistance, must also be provided with the General Notice and Election Notice. The Summary can be found here.
Premium Assistance Notice for Current COBRA Qualified Beneficiaries / Re-Opened Election Rights Notice
This notice must be provided to those who are currently enrolled in COBRA to advise them of the new subsidy. Additionally, the notice also must be provided to AEIs who previously failed to elect COBRA or discontinued it and who may now elect COBRA under the extended election period.
Notice in Connection with Extended Election Period is found here.
As above, the “Summary of the COBRA Premium Assistance Provisions under the American Rescue Plan Act of 2021,” which again contains information on the subsidy as well as the forms to elect or discontinue the premium assistance, must also be provided with the Notice in Connection with Extended Election Period. The Summary can be found here.
These notices must be provided by May 31, 2021.
Subsidy Expiration Notice
Additionally, the plan administrator 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).
This notice must be provided between 45 days before such expiration and ending 15 days before the expiration date. However, 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.
The DOL’s Model Notice of Expiration of Premium Assistance can be found here.
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.
Due to severe penalties for COBRA noncompliance, it is incredibly important for employers to act swiftly to identify individuals who are entitled to subsidies and 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 firstname.lastname@example.org.
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 email@example.com.