The American Rescue Plan Act (ARPA) is aimed at providing COVID-19 relief and included significant impacts for employee benefits. One such benefit is the COBRA Subsidy for Assistance Eligible Individuals (AEIs). Though the DOL has released new Model COBRA Notices and FAQs, many unanswered questions remain. As ETC continues to monitor additional guidance, employers are encouraged to rely on their COBRA TPAs, if such is in place.
COBRA Subsidy Basics:
- ARPA provides a temporary 100% COBRA subsidy to employees who have experienced a reduction in hours or involuntary termination, as well as a special enrollment period.
- This extended, special election period begins April 1, 2021 and ends 60 days after the employee receives required notification of the extended election period.
- Employer group health plan sponsors may be responsible for covering the initial cost of this temporary COBRA subsidy for eligible individuals, but they would be eligible for a credit against their Medicare FICA payroll taxes. Employers should work with their COBRA administrator or carriers to determine the requirements specific to their plans.
- The subsidy applies for up to six months of coverage from April 1, 2021 – September 30, 2021 (i.e., the “Subsidy Period”). The Subsidy Period will end earlier if COBRA enrollees:
- Become eligible for another group health plan, such as a plan sponsored by a new employer or a spouse’s employer but not including excepted benefits, a qualified small employer health reimbursement arrangement (QSEHRA) or a health flexible spending account (FSA), or if they become eligible for Medicare.
- Reach the end of their maximum COBRA continuation coverage period, which is generally 18 months from the end of employment. [ref]The COBRA maximum coverage period can be extended to 29 months for people with disabilities, and up to 36 months if there is a second qualifying event during the initial continuation coverage period, such as the divorce or separation of the employee and spouse.[/ref]
Questions & Answers:
- Who is eligible for the COBRA subsidy?
The COBRA premium subsidy is available to Assistance Eligible Individuals (AEIs). An AEI is a COBRA qualified beneficiary[ref]A COBRA qualified beneficiary is an employee who was covered by a group health plan on the day before a qualifying event occurred or that employee’s spouse, former spouse, or dependent child.[/ref] who meets the following requirements during the subsidy period (April 1, 2021 – September 30, 2021):
- Experienced a qualifying event that is either a reduction in hours (e.g., change from full-time to part-time status) or an involuntary termination[ref]The reduction in hours or the job loss need not be related to the COVID-19 pandemic. While neither the Departments of Labor nor Treasury have defined “involuntary termination” for purposes of the ARPA COBRA subsidy, the IRS has weighed in on this term of art in guidance related to COBRA subsidies under the American Recovery and Reinvestment Act (ARRA) in IRS Notice 2009-07, which is available here: https://www.irs.gov/pub/irs-drop/n-09-27.pdf.[/ref]
- Elects COBRA continuation coverage;
- Has not exhausted his or her 18-month maximum COBRA coverage period (or the applicable maximum coverage period that applies for group health plans exempt from federal COBRA but subject to state continuation coverage requirements)[ref]At this time, there is no guidance as to whether an AEI with a maximum coverage period beyond 18 months (extended by a secondary qualifying event (36 months) or by the 11-month disability extension), would qualify for the subsidy if that extended period coincides with the six-month subsidy period. If so, those periods will also need to be taken into consideration. More guidance is needed from the DOL on this.[/ref]; and
- Has not gained eligibility for other group health coverage (not including excepted benefits, QSEHRA, or health FSA) or Medicare.
Additionally, a special enrollment period exists for individuals who would otherwise be AEIs, but do not have a COBRA election as of April 1, 2021 – whether because the employee previously declined COBRA coverage when first offered or discontinued coverage early (e.g., due to nonpayment of premiums). This special enrollment period begins April 1, 2021 and ends 60 days after the AEI receives notification of the eligibility to elect COBRA. See FAQ No. 3 for more details.
Accordingly, AEIs eligible for the COBRA subsidy for at least one month of the subsidy period can include:
- Those currently enrolled in COBRA coverage beginning as early as November 1, 2019[ref]An AEI currently enrolled in COBRA coverage beginning on November 1, 2019, would be eligible for one month of the COBRA subsidy in April 2021, as that would be the last month of the AEI’s 18-month COBRA maximum coverage period.[/ref];
- Those who will become eligible and enroll after April 1, 2021, and before September 30, 2021;
- Those eligible for the special enrollment opportunity because they initially declined an offer of COBRA coverage that would have begun as early as November 1, 2019[ref]An AEI who initially declined an offer of COBRA coverage that would have been effective beginning on November 1, 2019, would be eligible for one month of the COBRA subsidy in April 2021, as that would be the last month of the AEI’s 18-month COBRA maximum coverage period.[/ref]; and
- Those eligible for the special enrollment opportunity because they initially accepted an offer of COBRA coverage that was effective as early as November 1, 2019, but they terminated that coverage early.[ref]An AEI who initially accepted an offer of COBRA coverage that was effective beginning on November 1, 2019, would be eligible for one month of the COBRA subsidy in April 2021, as that would be the last month of the AEI’s 18-month COBRA maximum coverage period. This AEI would have a gap in COBRA coverage between the period of time in which the AEI dropped COBRA coverage and April 2021 when the employee receives the COBRA subsidy.[/ref]
2. What plans are required to provide the ARPA COBRA subsidy?
All group health plans subject to federal COBRA must provide the COBRA subsidy, which includes all plans sponsored by private-sector employers or unions subject to COBRA rules under the Employee Retirement Income Security Act (ERISA) and plans sponsored by state or local governments subject to COBRA under the Public Health Service Act (PHSA). Group health plans exempt from federal COBRA (e.g., plans with less than 20 employees) but subject to state continuation coverage provisions also must comply. However, health FSAs are specifically exempt.
3. When must potential AEIs enroll in COBRA coverage to receive the COBRA subsidy?
For AEIs currently enrolled in COBRA coverage, they will not need to take any additional steps to receive the COBRA subsidy. For all other AEIs, they must elect COBRA coverage within 60 days of receipt of the relevant COBRA election notice. See FAQ No. 5 for more details on the required notices.
Keep in mind that the current extension of the 60-day COBRA election deadline does not apply to the ARPA COBRA subsidies.[ref]A joint agency rule and EBSA guidance (EBSA Disaster Relief Notices 2020-01 & 2021-01) provide that certain group health plan deadlines, including the 60-day COBRA election period, are extended until the earlier of (a) 1 year from the 60-day COBRA election deadline, or (b) the end of the outbreak period. For these purposes, the outbreak period begins March 1, 2020, and ends 60 days after the announced end of the COVID-19 national emergency.[/ref] Thus, potential AEIs must elect COBRA coverage within 60 days of receipt of their new election notice, or they will forfeit their right to elect COBRA coverage with premium assistance.
4. When is COBRA coverage effective for AEIs enrolling during the special enrollment window?
For an AEI electing COBRA coverage during the special enrollment window because the AEI initially declined a COBRA offer or discontinued COBRA coverage early, the AEI can choose to start coverage from one of the following dates:
- April 1, 2021 (even though the AEI may receive an election notice and make an election at a later date);
- Prospectively from the date of the AEI’s election; or
- Retroactively to the date of when the COBRA maximum coverage period would have begun if the individual is eligible to make that election under the extended time frames for electing COBRA.[ref]Per the joint agency rule and EBSA guidance referenced in footnote 8, the 45-day deadline for initial COBRA premium payments and 30-day deadline for subsequent COBRA premium payments were also extended until the earlier of (a) 1 year from the applicable deadline, or (b) the end of the outbreak period. Thus, an AEI could potentially begin coverage back to when the AEI lost coverage under the group health plan, but the AEI would be responsible for making up premium payments within these extended deadlines.[/ref]
However, premium assistance is only available during the subsidy period, and the AEI’s COBRA coverage may not extend beyond the original maximum coverage period.
For example, assume an AEI initially declined COBRA coverage that would have been initially effective July 1, 2020, and the AEI received a new election notice on May 1, 2021. In this scenario, the AEI has until June 30, 2021, to elect COBRA coverage (i.e., 60 days from receipt of the new election notice) to ensure it receives the COBRA subsidies.
The AEI can choose for coverage to begin on April 1, 2021, or prospectively from the date of the AEI’s election. Additionally, the AEI could also choose for coverage to begin retroactively to July 1, 2020, but the AEI would be responsible for making up all premium payments for the July 1, 2020 – March 30, 2021 period within the extended COBRA deadlines. Specifically, the 45-day deadline to make the initial COBRA payment would be due by the earlier of August 15, 2021, or the end of the outbreak period (i.e., 60 days after the announced end of the COVID-19 national emergency). Regardless of when the AEI chooses for COBRA coverage to commence, it will not extend past December 31, 2021, as that is the last date of the original 18-month maximum coverage period (July 1, 2020 – December 31, 2021).
5. What notices must be provided about the COBRA subsidy?
The DOL has provided sample notices related to the following three notice requirements:
- Special enrollment notices must be sent out within 60 days of April 1, 2021 (i.e., by May 31, 2021) to eligible AEIs. (Employers may use the Model DOL Notices or their own to fulfill the Notice requirements)
- General election notices must be sent to AEIs who first become eligible for coverage on or after April 1, 2021 and before September 30, 2021. These notices must contain information on the availability of the subsidy. This information can be added to current election notices, or a separate notice on the subsidy may be included with the general election notice.
- Expiration of subsidy notices must be sent to AEIs at least 15 days before and no earlier than 45 days before their subsidized coverage ends. This notice is not required for those whose coverage ends due to becoming eligible for another group health plan or Medicare.
Keep in mind that the current extension of the deadline for providing the COBRA election notice does not apply to the ARPA COBRA subsidies.[ref]A joint agency rule and EBSA guidance (EBSA Disaster Relief Notices 2020-01 & 2021-01) provide that certain group health plan deadlines, including the 30-day deadline to notify the plan administrator of a qualifying event and the 14-day deadline for the plan administrator to provide the COBRA election notice (or 44-day deadline to provide the COBRA election notice for employers who self-administer COBRA), are extended until the earlier of (a) 1 year from the expiration of the applicable deadline, or (b) the end of the outbreak period. For these purposes, the outbreak period begins March 1, 2020, and ends 60 days after the announced end of the COVID-19 national emergency.[/ref] Thus, plans must provide these notices in accordance with the timeframes outlined herein.
NOTE: Though not required, employers should also notify current COBRA participants of their right to the subsidy, and to not send payments for applicable coverage from April through September. If participants inadvertently pay premiums during this time, they should contact the plan administrator or employer plan sponsor to discuss a credit against future payments or a refund.
6. Who covers the costs of the COBRA subsidy?
Many details remain unknown at this time, but what we do know is that AEIs who elect COBRA coverage during the subsidy period must be treated as having paid in full the amount of the COBRA premium from April 1, 2021 through September 30, 2021.
Plans should not collect premium payments from AEIs for COBRA coverage spanning the subsidy period and subsequently require them to seek reimbursement. However, if an AEI paid any part of the COBRA premium during the subsidy period, plans should ensure that they either reimburse the AEI or provide a credit against future premium payments after the subsidy period ends.
Unfortunately, the agencies have not specifically addressed when the employer plan sponsor bears the responsibility of paying the initial cost of the COBRA subsidy versus the issuer of the COBRA coverage. Regardless of whether the issuer or employer funds the upfront costs of the COBRA subsidy amount, they should be reimbursed by the federal government through a credit against payroll taxes (or as a refund of an overpayment for credit amounts exceeding payroll taxes). In the absence of official guidance from the DOL and IRS, this responsibility could vary depending on the COBRA TPA and the benefit carrier involved.[ref]DOL FAQs About COBRA Premium Assistance Under the American Rescue Plan Act of 2021, No. 8 provides in part the following: “…[A]ssistance Eligible Individuals do not have to pay any of the COBRA premium for the period of coverage from April 1, 2021 through September 30, 2021. The premium is reimbursed directly to the employer, plan administrator, or insurance company through a COBRA premium assistance credit.[/ref] More definitive guidance is needed on this issue.
7. Can plans allow AEIs to choose a different coverage option?
Group health plans can allow AEIs to enroll in different coverage than they had at the time of their COBRA qualifying event and doing so will not cause the AEI to lose the COBRA premium assistance as long as the following conditions are met:
- The COBRA premium charged for the different coverage is the same or lower than for the coverage the individual had at the time of the qualifying event;
- The different coverage is also offered to similarly situated active employees; and
- The different coverage is not limited to only excepted benefits, a QSEHRA, or health FSA.
If the plan permits individuals to change coverage options, the plan must provide individuals with a notice of their opportunity to do so. In such cases, AEIs have 90 days to elect to change their coverage after the notice is provided.
8. Must plans allow AEIs to add family members who initially declined COBRA coverage to enroll?
Yes, if a family member did not elect COBRA coverage when first eligible and that individual would be an AEI, then the family member has an additional opportunity to enroll and qualify for the COBRA premium assistance. However, as with all other AEIs, the extended election period does not extend the maximum period of COBRA coverage that would otherwise apply had COBRA coverage been originally elected.