COBRA Subsidy & The American Rescue Plan Act
By Anthony G. Stergio, Ron Luster and Brian Stevenson
On March 11, 2021, President Biden signed The American Rescue Plan Act of 2021 (ARPA) into law. ARPA was designed to provide a broad range of economic stimulus through numerous programs. Among them, ARPA subsidizes the COBRA and State mini-COBRA premiums for certain former employees and their dependents. Employees and their covered dependents, who are eligible for COBRA coverage from April 1, 2021 through September 30, 2021, may receive a subsidy for the entire cost of COBRA coverage.
The ARPA subsidy applies to any group health plan subject to the federal COBRA rules (generally, sponsored by an employer with 20 or more employees) and group health plans subject to state "mini COBRA" laws like Texas’s state continuation statute (for employers with less than 20 employees). The subsidies are available for medical, dental, and vision plans, but not flexible spending accounts (FSAs). Pursuant to ARPA, the employer or plan “fronts” the amount of the COBRA premium subject to the subsidy (including the 2% administrative charge). The employer or plan recovers the subsidy amounts by claiming a credit against Medicare payroll taxes. This means that eligible employees on COBRA or Texas State continuation during this time period will not be required to pay for the coverage provided. Those on COBRA during this time period must be treated as having paid their premiums in-full.
ARPA provides subsidies for Assistance Eligible Individuals (AEIs) who lost health coverage due to their or their family member’s involuntary termination
or reduction in hours
. The ARPA does not provide subsidies to employees who voluntarily resign
from employment, or who lose coverage for any other reason. An “involuntary termination” under ARPA occurs when impacted employees are terminated despite being willing and able to continue performing services. Involuntary termination includes:
Terminations other than a termination due to the employee’s implicit or explicit request; or
Severance buyouts in which an employee elects to take part in a voluntary
severance package where the employer has indicated that after the voluntary offer period, a certain number of remaining employees in the employee’s group will be terminated.
TERMINATION OF SUBSIDIES:
Eligibility for the COBRA Subsidy will terminate early (Before September 30, 2021) if:
The individual becomes eligible
for coverage under Medicare or under another group health plan (including a spouse’s group health plan) even if the individual does not enroll in that coverage
The individual’s maximum COBRA period ends (e.g., 18 months).
If any of these situations occur, the employer or plan should stop fronting the COBRA premium costs, as no subsidy is available.
EXTENDED COBRA ELECTION PERIOD:
ARPA also extends the COBRA election period. This expanded COBRA elective period occurs for the 60 days after the date an eligible individual receives the required notice of the expanded election period. (See below). This elective election period is only 60 days, it is not
further expanded by the extension provided for COBRA elections by the COVID-19 National Emergency.
The election extension also includes someone who, prior to the subsidy period, did not elect continuation coverage but would have remaining coverage extending into the subsidy period if they had elected coverage. This election extension would also include someone who elected and subsequently dropped COBRA coverage. Thus, employees who were laid off during the past year will be eligible for the COBRA subsidy even if they dropped COBRA coverage or did not initially elect COBRA coverage after their termination. ARPA does not
expand Texas state continuation coverage nor does it require a second election period.
NEW NOTICE REQUIREMENTS:
Plans must provide notice to employees eligible for this subsidy. For individuals who become entitled to COBRA during the subsidy period, the notice must include a description of the availability of premium assistance and, if allowed by the employer, the ability to elect coverage under a lower-cost medical plan option. This new information may be included in the COBRA election notice or as a separate document. Presumably, this notice must also be sent to any currently qualified beneficiary.
ARPA requires employers’ plans to provide notices to former employees who may be eligible to receive these subsidies. The DOL recently provided the following model notices for use by group health plans:
60 days after the qualifying event (normal COBRA procedure)
This notice is for plans subject to Federal COBRA to send to individuals experiencing any qualifying event between April 1, 2021-September 30, 2021. This notice may be sent separately or with the standard COBRA general notice. This notice is available here
State mini-COBRA Notice
Normal state mandated deadlines
This notice is an option for plans subject to Texas’ mini-COBRA law (applicable to employers with less than 20 employees). This notice may sent to individuals experiencing any
qualifying event under the Texas Health Insurance Continuation Statute between April 1, 2021-September 30, 2021 (including voluntary terminations). This notice is available here
Notice of Extended Election Period
May 31, 2021
This is the notice directed at people who had COBRA qualifying events in the past. This notice is not
applicable to State mini-COBRA laws. It is for individuals who do not presently have Federal COBRA coverage but qualified for such coverage due to involuntary termination of employment or reduction in hours occurring generally between October 1, 2019 and March 31, 2021. This notice is available here
Request for Treatment as an Assistance Eligible Individual
May 31, 2021
This should be attached to the three notices listed above. It is the form for individuals to complete to request premium assistance. This notice is available here
Notice of Expiration of Subsidy Period
15-45 days before subsidy ends
ARPA also requires plans to send notice when the ARPA premium assistance subsidies is expiring. This notice to be sent no more than 45 days from expiration, and no less than 15 days from expiration. This notice is available here
Failure to provide a new or modified notice will be viewed as failing to satisfy COBRA rules. The penalties can be a minimum of $2,500 for each beneficiary who is affected or $100 for every day the employer was not compliant, whichever is greater. Additionally, an AEI who no longer qualifies for a subsidy due to eligibility for other coverage must notify the employer in a timely manner or be subjected to a potential penalty of the greater of $250 or 110% of the subsidy to which the individual was not entitled.
WHAT SHOULD EMPLOYERS DO?
Given these new regulations, employers must take prompt action so that all required notices go out by the May 31, 2021 deadline. Employers should:
Review individuals who previously were eligible for COBRA coverage as the result of a termination of employment or reduction in hours.
Identify which of those individuals voluntarily terminated as opposed to involuntarily terminated.
Identify which AEIs dropped COBRA coverage prior to April 1, 2021, but still would have COBRA eligibility prior to expiration of the maximum 18 months.
Update internal process to reflect changes (non-payment is not a reason for cancellation).
More clarity on these provisions will likely be forthcoming. We will of course keep you posted.
For More Information:
Anthony G. “Tony” Stergio, Shareholder
Andrews Myers | Attorneys at Law