On April 7, 2021, the U.S. Department of Labor (DOL) issued guidance in the form of Frequently Asked Questions (FAQs) and model notices to help employers comply with the federal COBRA premium subsidy assistance (COBRA subsidy) requirements under the American Rescue Plan Act of 2021 (ARPA).
Brief Summary: COBRA Premium Assistance
Under the ARPA, Assistance Eligible Individuals (AEI) may receive a 100 percent subsidy for their COBRA premiums from April 1, 2021, to September 30, 2021. In general, employers pay for the subsidies and then receive refundable tax credits (or reduced payroll tax withholdings) equal to the subsidized premiums, which require complying with tax reporting requirements.
An AEI is an employee or an employee’s family member who loses coverage due to a reduction in hours or an involuntary termination (for reasons other than gross misconduct). Employees that voluntarily terminate are not eligible for the COBRA subsidy. To date, neither the DOL nor the IRS has defined what constitutes an involuntary termination. Employers may want to revisit the guidance that was issued for the COBRA subsidy provided by the American Recovery and Reinvestment Act of 2009 during the Great Recession.
The COBRA subsidy also covers former employees (and family members) who: (1) are currently on COBRA coverage, (2) have never elected COBRA, or (3) have elected and discontinued COBRA prior to the subsidy period, but whose COBRA period includes part of the subsidy period. The COBRA subsidy is also available for continuation coverage required by state “mini-COBRA” laws if that coverage is similar to federally-mandated COBRA coverage.
For AEIs, the COBRA subsidy will last a maximum of six months but will end on the earlier of: (1) the individual’s maximum period of COBRA coverage or (2) September 30, 2021. The COBRA subsidy will also end if the individual becomes eligible for another group health plan or Medicare.
FAQs – COBRA Premium Assistance Under the ARPA
The FAQs issued by the DOL highlight the key requirements for COBRA premium assistance under the ARPA. The FAQs also clarify some questions that may arise during the implementation of the COBRA subsidy, such as those described below:
Eligibility Related to Medicaid and the Exchange
Eligibility for Medicaid or individual health insurance coverage through the Exchange does not disqualify an otherwise eligible individual from the COBRA subsidy.
Extended Election Period for COBRA Subsidy
Qualified beneficiaries whose qualifying event was a reduction in hours or an involuntary termination of employment prior to April 1, 2021, and who did not elect COBRA continuation coverage or who elected COBRA continuation coverage but are no longer enrolled may have an additional election opportunity. Individuals eligible for this additional COBRA election period must receive a notice of extended COBRA election period by May 31, 2021, and individuals have 60 days after the notice is provided to elect COBRA coverage. Individuals can begin their coverage prospectively from the date of the election, or, if the individual has a qualifying event on or before April 1, 2021, then the individual may choose to start their coverage as of April 1, 2021. Regardless, the COBRA subsidy is only available for periods of coverage from April 1, 2021, through September 30, 2021.
COVID Extension of Election Period
Unless modified by the ARPA, the existing requirements for the manner and timing of COBRA notices continues to apply. The extended deadlines to elect COBRA continuation coverage due to the COVID-19 national emergency do not apply to the COBRA subsidy. An AEI, therefore, must elect COBRA coverage with the COBRA subsidy within 60 days of the election notice regarding the COBRA subsidy.
State Mini-COBRA Laws
The COBRA subsidy does not change any requirement of a state continuation coverage program. Rather, the COBRA subsidy only allows AEIs who elect continuation coverage under state insurance law to receive premium assistance during the subsidy period (April 1, 2021, through September 30, 2021), and it allows AEIs to switch to other coverage offered to similarly situated active employees if the plan allows for it and if the new coverage is not more expensive than the prior coverage.
The AEIs cannot be charged any amount for COBRA during the subsidy period, including any administration fee that would otherwise be charged.
The DOL recommends that employers use the appropriate Model Notices to notify eligible individuals (including former employees who may be eligible) of the COBRA subsidy. The deadline for providing the initial notice of the availability of the COBRA subsidy to potential AEIs is May 31, 2021.
The DOL issued the following Model Notices:
- Model General Notice and COBRA Continuation Coverage Election Notice;
- Model Notice in Connection with Extended Election Period;
- Model Alternative Notice;
- Model Notice of Expiration of Premium Assistance; and
- Summary of COBRA Premium Assistance Provisions under the American Rescue Plan Act of 2021.