On March 11th, President Biden signed the American Rescue Plan Act (ARPA) to assist workers impacted by the Covid-19 pandemic. ARPA has significant implications for COBRA. The spirit of the law is to provide a one hundred percent COBRA subsidy for the period starting April 1, 2021, through September 30, 2021. Unfortunately, the new provisions are filled with nuances and complexities. Plus, the Department of Labor (DOL) and the IRS still needs to issue guidance to clarify implementation procedures.
Below I cover some of the elements of this new act for general discussion purposes, but this article should not be construed as legal or tax advice. The implications of this legislation are complex. As always, we strongly encourage you to reach out to us directly or consult with your legal counsel for additional guidance.
Employers and plan administrators should promptly begin preparations for compliance with the ARPA COBRA subsidy provisions, including the following:
- Identifying individuals entitled to receive a notice regarding the new subsidy;
- Deciding whether to permit individuals to enroll in a different plan option than the one in which they were enrolled when coverage was lost; and
- Updating internal administrative processes to ensure diligence in sending out the specific notices within specific periods or face possible penalties for non-compliance.
Three Background Points (the basics)
- Consolidated Omnibus Budget and Reconciliation Act (COBRA) requires employers with 20 or more employees that provide group health plan coverage to offer continuation of coverage to qualified beneficiaries who have lost coverage as a result of certain qualifying events (i.e., termination). Employers were previously permitted to charge QBs up to 102% of the medical plan’s costs of the coverage.
- ARPA mandates employers to pay 100% COBRA premium subsidy for “assistance eligible individuals” (AEIs) for six months, April 1, 2021, through September 30, 2021.
- ARPA will subsidize employers’ costs 100% via quarterly payroll tax credits. The IRS and Secretary of Treasury will provide forms and instructions in the coming months.
Issues & Identification
Correctly identifying AEIs is crucial. You need thorough and accurate records so that notifications go out to the necessary individuals. An AEI is any qualifying plan participant and their dependent(s) who lose, or has lost, health insurance coverage due to an involuntary termination (other than for gross misconduct) or a reduction in hours worked.
Additional details add to the intricacy of identifying these individuals, including 1) ARPA covers employees who lost their jobs or had a reduction in hours since November 2019; 2) Even if these individuals did not elect COBRA or their coverage was discontinued before April 1, they may now be eligible and they have the opportunity to elect this coverage again.
As with COBRA eligibility in general, an AEI will lose eligibility for COBRA subsidized coverage if they become eligible for other group health insurance coverage or Medicare. AEIs are required to notify the plan if they lose eligibility for COBRA subsidized coverage, and they will be penalized if they do not do so (average penalties are $250).
The ARPA imposes new notice requirements on plan administrators, and the DOL will specify all of the information that must be included in each notice:
- Election Notice. For AEIs who (1) previously failed to elect COBRA, (2) discontinued COBRA coverage, or (3) have yet to elect COBRA coverage but remain eligible to do so under the usual COBRA rules, a COBRA election notice must be sent with specific detailed information about the subsidy within 60 days of April 1, 2021.
- Premium Assistance Notice. For AEIs who become entitled to elect COBRA during the Subsidy Period, a COBRA election notice must be sent with specific detailed information about the subsidy. Model notices are required to be provided by the DOL within 30 days of enactment of the ARPA.
- Subsidy Termination Notice. The plan administrator must provide notice alerting an individual that the Subsidy Period is ending. This notice is not required if the subsidy will terminate due to the individual’s eligibility for other coverage. Model notices are required to be provided by the DOL within 45 days of enactment of the ARPA.