Beginning April 1, 2021 and ending September 30, 2021 (the “Subsidy Period”), all individuals eligible for a continuation of benefits under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) may qualify for a new COBRA assistance program under the newly-enacted American Rescue Plan Act (“ARPA”). Under ARPA, eligible individuals who experience a COBRA-qualifying event may be entitled to have their full COBRA premiums, including the 2% administrative fee, subsidized for the entire six-month Subsidy Period. This program applies to individuals who have become eligible for COBRA during the Subsidy Period, or who are still within their original COBRA coverage period. Because COBRA coverage may extend for up to eighteen (18) months, qualifying events from as early as November 2019 may be eligible.
Eligible Individuals under the American Rescue Plan Act
Former employees and their covered family members are considered "assistance eligible individuals" under ARPA if:
- They are otherwise eligible for COBRA coverage as "qualified beneficiaries" because employer plan coverage ended as a result of involuntary termination of employment or reduction of hours (whether or not related to COVID-19), and
- The qualified beneficiaries are receiving or are eligible to receive COBRA coverage during the six-month period beginning April 1, 2021 and ending September 30, 2021; or
- The qualified beneficiaries declined coverage during their initial election period, but are still within their 18-month COBRA coverage period; or
- The qualified beneficiaries elected COBRA but discontinued coverage before April 1, 2021.
This does not include individuals whose separation was voluntary or for gross misconduct, or those who qualify under another employer-sponsored health plan or Medicare.
Although the intent of the bill is to have the federal government fund these subsidies through payroll tax credits, this necessarily means that employers and plan administrators must initially cover the cost and will need to claim the credit later. This could prove costly at first as ARPA also provides for an extended election period. Note, employers cannot receive a double benefit. If an employer is taking a tax credit for qualifying wages under a PPP loan, employee retention credit, or for FFCRA wages paid, then they cannot also take a tax credit for the COBRA subsidy for the same employee.
Importantly, as noted above, the ARPA also gives COBRA eligible individuals who either did not originally enroll, or who enrolled and dropped coverage, a second chance to enroll in COBRA to cover the remainder of their original coverage period. The coverage period is not extended by this election. This means that if someone experienced a COBRA-qualifying event in February of 2020, but did not elect coverage within the original 60 days, then as of April 1, 2021, that individual would have another 60 days to elect COBRA coverage. This coverage would continue subsidized until September 30, 2021, and unsubsidized for the remainder of the individual’s original coverage period. In the above example, coverage then would continue until March 2022. Should the individual’s original coverage period expire before September 30, 2021, however, the individual would not be entitled to a continued subsidy.
Employers are permitted, but not required, to allow assistance eligible individuals to elect a different coverage option than the one that was in effect when their coverage first terminated, as long the alternative coverage:
- is offered to similarly situated active employees;
- includes more than just "excepted benefits" such as dental and/or vision coverage;
- does not cost more than the prior coverage; AND
- does not include coverage under qualified small employer HRAs and flexible spending accounts.
The change must be elected within 90 days of receiving notice of the option to switch coverage.
Plan sponsors must send a notice to eligible individuals within 60 days of April 1, 2021, no later than May 31, 2021, ensuring compliance with ARPA’s notification guidelines. In addition to the prior COBRA notice requirements, new COBRA notices must now include:
- The forms required to establish eligibility;
- The name, address and telephone number of plan sponsor or third-party administrator;
- An explanation of the individual’s rights to the extended election period;
- An explanation of the individual’s obligation to notify the employer if the individual is qualified under another employer-sponsored health plan or Medicare, including the penalties for failing to do so; and
- A clear description of the right to the COBRA subsidy.
Employers will also be required to notify assistance eligible individuals when their subsidies are about to expire. The notice must be provided between 15 and 45 days prior to the date that the subsidies end.
If an employer collected a premium from an assistance eligible individual for April 2021, who is eligible for the subsidy the employer must return the premium within 60 days of receipt. The FAQ issued by the Department of Labor (DOL) indicates that eligible individuals who have been enrolled in COBRA continuation coverage prior to April 1, 2021 are not eligible for a refund of premiums paid. Yet, the DOL also suggests that eligible individuals in this circumstance should contact the plan administrator or employer to discuss a credit against future payment or a refund in certain circumstances. The FAQ does not elaborate on what those circumstances might be, but we surmise this might entail eligible individuals who have been paying out of pocket for COBRA premiums to requests subsidy for premiums due after April 1, 2021.
The DOL’s model notices and FAQ that are available at COBRA Premium Subsidy | U.S. Department of Labor (dol.gov).
Accordingly, COBRA-covered employers should take immediate steps to evaluate which of their former employees ARPA may cover and determine with their plan administrators efficient methods of processing notices, COBRA elections, and requests for tax credits. Employers should be careful to maintain detailed supporting documentation regarding the initial reasons for termination, and the individual’s original COBRA election.
If you would like to further discuss your obligations under ARPA, we are available to assist.