The latest COVID relief package (the American Rescue Plan Act of 2021, “ARPA”) includes a COBRA subsidy that could affect many employers. The ARPA subsidy generally requires employers to cover 100% of the cost of COBRA continuation coverage for up to six months between April 1, 2021, and September 30, 2021 (the “Subsidy Period”). These premium amounts are then reimbursable via refundable payroll tax credit.
This subsidy is not universally available, but generally applies under rules similar to the standard COBRA rules. It applies for individuals who lose coverage under a covered employer’s health care plan due to involuntary termination or reduction of hours. Similar to the standard COBRA rules, it does not apply when an employee voluntarily quits, or if an employee is fired for cause. In addition, it is purely a monetary subsidy and does not otherwise extend the length of the applicable COBRA period.
Eligible individuals include employees and dependents who (1) experience a qualifying event and elect COBRA during the Subsidy Period, (2) are already enrolled in COBRA during the Subsidy Period, (3) did not elect COBRA when it previously became available but are still within the original 18-month COBRA period, OR (4) elected COBRA initially but let the coverage lapse and are still within the original 18-month COBRA period. Note, for these third and fourth categories, this means employers must consider individuals who were terminated potentially as far back as November 1, 2019.
Eligible individuals are treated as having paid the full premium amounts for the purposes of any COBRA continuation provision during the Subsidy Period. However, the subsidy will not apply for any months on or after the eligible individual becomes eligible for another group health plan (or Medicare), the maximum 18-month period of continuation coverage expires, or September 30, 2021. Note that, as it is currently written, this COBRA subsidy is for a maximum of six months (i.e., the subsidy will cease no later than September 30, 2021). Of course Congress could always extend this, and that would not be surprising if prior COVID relief is any indicator. But as it is currently written, the subsidy will only be effective during the Subsidy Period.
An employer also may (but is not required to) permit eligible individuals to change their election and enroll in a different plan offering if (1) the premium for the newly elected coverage is not more than the premium for the individual’s existing coverage prior to making the new election, and (2) the employer also offers the newly elected coverage to similar active employees at the time of election. This option is not available if the newly elected coverage provides only excepted benefits, is a qualified small employer health reimbursement arrangement, or is a flexible spending arrangement. If an employer chooses to offer such an option, eligible individuals will have up to 90 days to make the new election after receiving notice from the employer, as discussed below.
New Notices Required:
ARPA also creates two new COBRA notice requirements. First, on or before May 30, 2021, employers must notify eligible individuals in writing regarding eligibility for the subsidy (which must be prominently displayed) and provide the opportunity to enroll (or re-enroll) in COBRA during the subsidy period, including the option to enroll different coverage, if permitted by the employer. This notice must include, among other things, notice to the eligible individual of the obligation to report a change in eligibility status and the penalty for failure to do so. Eligible individuals will have 60 days to elect coverage after receiving the required notice.
Second, between 45 and 15 days before the subsidy will expire, employers must provide eligible individuals with written notice of (i) the expiration with the expiration date prominently identified, and (ii) the potential eligibility for coverage outside the subsidy either through COBRA continuation coverage or under a group health plan. However, if the eligible individual becomes eligible for coverage under another group health plan (other than coverage of only excepted benefits, flexible spending arrangement, qualified small employer health reimbursement arrangement, or Medicare), this notice requirement is waived. A model notice is anticipated to be available by April 25, 2021.
These notices are in addition to the standard COBRA eligibility notices; however, ARPA does not require the notices to be provided in a separate document. Employers will need to update their COBRA notices. The DOL has been instructed to update their model notices within 30 days after enactment of the ARPA, and updates are anticipated to be available by April 10, 2021.
Reimbursable Payroll Tax Credit:
During the Subsidy Period, the plan sponsor (this will generally be the former employer) is responsible for paying COBRA premiums on behalf of eligible individuals. In turn, the plan sponsor can obtain reimbursement for these premiums through a refundable payroll tax credit. The credit is limited to the amount in COBRA premiums not paid by eligible individuals under the subsidy, and any excess will be refunded as an overpayment. An anticipated credit may also be advanced. Unlike the subsidy to an eligible individual, the credit will increase the plan sponsor’s gross income for the taxable year in which the credit is allowed. Further, the plan sponsor is not permitted to “double dip” by taking a credit under the ARPA if the sponsor has claimed a credit for qualified wages under the CARES Act or for qualified health plan expenses under the FFCRA. Finally, in the event an eligible individual pays the COBRA premium during the subsidy period, the plan sponsor is required to reimburse that individual for the amount paid. Further details on this process are expected from the IRS.
The full text of the Bill can be found here, and these COBRA-specific provisions begin at page 124 (Subtitle F -- Preserving Health Benefits for Workers).
Further guidance is expected from the IRS, which will hopefully answer some open questions regarding compliance with this new law. In the meantime, employers should check in with their COBRA advisors and continue to monitor this.
Over the past several months, the Adams and Reese Crisis Response and Preparedness Team has sent out various alerts regarding the outbreak of COVID-19 and how it may affect the way in which you do business. We have compiled a list on our Crisis Response and Preparedness page.