As highlighted in NFC’s eAlert last month, the American Rescue Plan Act of 2021 (“ARPA”) – President Biden’s $1.9 trillion COVID-19 relief package – includes a subsidy for the full cost of continuing health insurance under COBRA for certain qualified individuals.The following are key points for employers to keep in mind regarding the new mandatory COBRA subsidy:· Covered plans – The ARPA COBRA subsidy applies to any group health plan subject to the federal COBRA or state “mini COBRA” rules. The subsidy does not apply to a health flexible spending account.· Covered individuals – The ARPA COBRA subsidy is available to individuals who lose or have lost healthcare coverage due to a layoff or involuntary termination (other than for gross misconduct) or reduction of hours and elect COBRA continuation coverage (“assistance eligible individuals”). Individuals who lose coverage due to retirement or resignation or other voluntary reasons are not eligible for the subsidy. Assistance eligible individuals include the impacted employee as well as his or her spouse and eligible dependent children.Assistance eligible individuals include:
1. Those who have COBRA coverage as of April 1, 2021;
2. Those who experience a covered qualifying event between April 1, 2021 and September 30, 2021; and
3. Those who declined COBRA coverage or let coverage lapse but whose maximum period of COBRA coverage due to a covered qualifying event has not expired as of April 1, 2021. This means that qualified individuals who were terminated as long ago as October 2019 (with an 18-month maximum coverage period) may be eligible for the COBRA subsidy.
- Covered period – An individual’s subsidy period begins April 1, 2021 and will end on the earlier of (i) September 30, 2021, (ii) the date the individual reaches the end of his/her maximum coverage period, or (iii) or the date the individual becomes eligible for another group health plan or Medicare. An assistance eligible individual who becomes eligible for other coverage during the subsidy period must notify the plan of such eligibility and failure to do so without reasonable cause will subject the individual to financial penalties. Note that the individual only has to become “eligible” for other coverage, not actually be “covered” for the subsidy to cease.
- Subsidy amount – The subsidy is equal to 100% of the COBRA premium for assistance eligible individuals during the covered period. The subsidy amount is not taxable income to the individual. If an assistance eligible individual pays a COBRA premium for a period of subsidized coverage, the person to whom the premium is payable must reimburse the individual within 60 days after the date the premium payment was made.
- Employer tax credit for subsidy – Employers sponsoring a group health plan are responsible for paying health insurance carriers for the COBRA premiums or ensuring that premiums are credited to self-funded plans so that coverage is maintained. An employer may recover the full cost of subsidized premiums by taking a credit against the 1.45% Medicare portion of the FICA tax. Additional guidance on this is expected from the IRS.
- Lower-cost plan option – As a departure from the regular COBRA rule that a qualified beneficiary may only continue coverage that was in effect on the date of the qualifying event, under APRA an employer may (but is not required to) allow an assistance eligible individual to elect different coverage if the COBRA premium for that coverage costs the same or is less than the COBRA premium charged for the coverage in effect for the individual at the time of their qualifying event. The lower-cost option must be one that is offered to similarly situated active employees and may not be an excepted benefit, a qualified small employer health reimbursement arrangement, or a health flexible spending account.
- New notice requirements – The DOL has just issued Model Notices and the related Summary of COBRA Premium Assistance Provisions under the ARPA. [CLICK HERE for the DOL’s COBRA Premium Subsidy resources, including the Model Notices and Summary]. Employers should coordinate with COBRA and plan administrators or insurers to make sure that all of the required notices are being sent to assistance eligible individuals as follows:
- General Notice and Election Form for Newly Eligible Individuals: This Notice (along with the Summary of COBRA Premium Assistance Provisions) should be provided to eligible individuals who become entitled to COBRA between April 1 and September 30 notifying them of the availability of the subsidy and any applicable lower-cost plan option. The DOL also has provided a Model Alternative Notice for those small employer plans subject to state mini-COBRA laws.
- Notice and Election Form for Eligible Individuals Whose Qualifying Event Occurred Before April 1, 2021: This Notice (along with the Summary of COBRA Premium Assistance Provisions) should be provided to eligible individuals who previously elected COBRA coverage, as well as eligible individuals who declined COBRA coverage or who let COBRA coverage lapse. This notice also should include an election form for individuals that did not elect COBRA coverage or dropped COBRA coverage so that they can elect subsidized coverage. In addition, if the employer decides to allow a change in medical plan coverage, a description of any applicable lower-cost plan option and related election form should be included. This Notice must be provided no later than May 31, 2021.
- Notice of Expiration of Premium Assistance: Notice must be provided to any assistance eligible individual who elects subsidized COBRA of the date of expiration of the subsidy period and of other available coverage under unsubsidized COBRA. This Notice must be sent between August 16, 2021 and September 15, 2021.
- Summary of COBRA Premium Assistance Provisions under the ARPA and Request for Treatment as an Assistance Eligible Individual: The Summary must be provided in conjunction with the first two Notices above. Included in the Summary is a Request for Treatment as an Assistance Eligible Individual which must be completed and returned within 60 days of receipt by any assistance eligible individual who wishes to receive the ARPA COBRA premium assistance.
If you have any questions relating to the ARPA COBRA subsidy or other employment-related issues, please feel free to reach out to the NFC Attorney with whom you typically work or call us at directly.