On April 7th, the Department of Labor (DOL) issued the much-awaited guidance on Consolidated Omnibus Budget Reconciliation Act (COBRA) premium assistance available from April 1, 2021 through September 30, 2021 under the American Rescue Plan Act of 2021 (ARPA). The guidance was released in the form of an FAQ with accompanying sample notices.
The subsidy under ARPA funds the full cost of continuation coverage under both federal COBRA and state “mini-COBRA” laws for group health plan coverage provided to “Assistance Eligible Individuals.” This subsidized coverage not only applies to individuals who had already elected continuation but must be offered to individuals who previously waived continuation or whose coverage lapsed due to a failure to pay premiums, but who are still within the maximum period for which continuation would apply.
Assistance Eligible Individuals
One of the key questions since ARPA was passed was how the DOL would define an “Assistance Eligible Individual.” Would this only include people who could directly connect a loss of coverage to COVID-19 or would far more people qualify under a broader definition? We now know that answer and it may come as a surprise to many employers.
In the FAQ, Q3 defines such persons as individuals who are “eligible for COBRA continuation coverage by reason of a qualifying event that is a reduction in hours (such as reduced hours due to change in a business’s hours of operations, a change from full-time to part-time status, taking of a temporary leave of absence, or an individual’s participation in a lawful labor strike, as long as the individual remains an employee at the time that hours are reduced) or an involuntary termination of employment (not including a voluntary termination).”
There are several key elements to glean from this passage:
- Reductions in hours that did not result in termination but caused a loss of eligibility appear to qualify, for example an employee who went from full-time to part-time;
- the reduction in hours or termination does not appear to require a direct link to COVID-19;
- the reduction in hours or termination could predate the pandemic; and
- voluntary terminations (such as retirements or taking a new job) don’t qualify.
Eligibility for the subsidy ends, if among other things, an individual is “eligible for other group health coverage, such as through a new employer’s plan or a spouse’s plan.” Employers would typically be unaware of eligibility for other coverage. Under the guidance, Qualified Beneficiaries are required to complete a certification regarding their eligibility for Premium Assistance by completing a special form which among other things warns individuals of penalties that may be assessed if they continue to receive the subsidy when they are no longer eligible.
Additional Election Opportunity
As previously mentioned, employers must offer a new election opportunity to qualified beneficiaries “who did not elect COBRA continuation coverage when it was first offered prior to that date or who elected COBRA continuation coverage but is no longer enrolled (for example, an individual who dropped COBRA continuation coverage because he or she was unable to continue paying the premium) may have an additional election opportunity at this time.”
Employers must provide a notice of the new election opportunity to such individuals no later than May 31, 2021. Qualified beneficiaries will have 60 days to make such an election and if their qualifying event predated April 1, 2021 may retroactively elect coverage to April 1st.
Where a state continuation law, rather than federal COBRA, applies, the additional election opportunity is not guaranteed. Some states may make modifications to their mini-COBRA laws to allow for these elections, but at this time it is unclear which states may do so.
In addition to the special notice explaining the premium subsidy and certifying eligibility, the DOL has issued other new notices that address the premium subsidy and Additional Election Opportunity.
Notice for Qualifying Events between April 1, 2021 and September 30, 2021. This notice would be provided to individuals who experience a qualifying event during the subsidy period.
Subsidy Notice for State Continuation. This notice would be provided to individuals who are eligible for continuation under state mini-COBRA laws. Once again whether or not an individual will be able to elect coverage will depend entirely on the relevant state continuation laws.
Notice of Expiration of Premium Assistance. This notice is provided when an Assistance Eligible Individual is no longer eligible for the premium subsidy either because the subsidy has expired, or they are no longer eligible for continuation.
Summary of COBRA Premium Assistance Provisions. This is the previously mentioned notice that not only provides information on the premium subsidy, but also includes a certification from the qualified beneficiary regarding their eligibility. This would go out with the qualifying event or state continuation notices.
Please note that all the notices require some level of customization for your company. They cannot just be sent out “as is.”
Only a small percentage of qualified beneficiaries typically elect COBRA. Fully subsidized COBRA is however likely to substantially change those patterns. Unfortunately, the Treasury will not be directly paying insurance companies for the fully subsidized coverage. Rather, much of the work will fall on employers. Much like the COVID-19 sick leave provided under both the FFCRA and ARPA, employers will be reimbursed for the premium expenses via a credit against Medicare FICA payroll taxes.
Unfortunately, this early guidance makes no mention whatsoever of how this will work. Presumably 941 forms will again be amended to include fields for employers to enter the credit they wish to claim, there may even be an advance available as was the case with leave under the FFCRA. Where applicable, payroll vendors will have to implement processes to collect data from employers so that it can flow into the 941 forms filed by the vendor on behalf of the employer.
The initial guidance gave us important insight into how the credit will work but left many questions unanswered. Is a seasonal employee whose work ended during the relevant time frames subsidy eligible? Are there special considerations for self-funded plans? What states will allow new elections under mini-COBRA. Much remains unknown.
We do, however, have more on the basics and model notices, so we are in a much better position than we were a few days ago. As an initial step companies can certainly begin identifying Assistance Eligible Individuals and preparing the new notices. Where a third-party COBRA administrator is involved, it may take some time for them to review and update their procedures, it may be good to inquire soon about how they expect their processes to work.”
We certainly expect more details in the coming weeks and waiting to rush out notices may be advised where special circumstances raise questions of eligibility.
Although we still don’t know everything, we now have enough information to host a webinar on the employment related provisions of ARPA, including the COBRA subsidy. The event will be scheduled for Monday, April 19th at 2:00 PM eastern time and you may sign up below.
Webinar Monday, April 19, 2021
2pm eastern time
Employment related provisions of ARPA, including the COBRA subsidy and paid leave
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