The American Rescue Plan Act of 2021 ("ARP") includes a 100% COBRA temporary subsidy for certain eligible individuals ("Assistance Eligible Individuals") who lost health care coverage due to an involuntary termination of employment or a reduction in hours. As we previously discussed in our blog titled "New COBRA Subsidy Available April 1, 2021," the ARP will subsidize 100% of an Assistance Eligible Individual's premium cost for COBRA continuation coverage from April 1, 2021 through Sept. 30, 2021. The blog provides a detailed summary of the ARP's COBRA subsidy provisions.
On April 7, 2021, the Department of Labor issued much needed guidance regarding the new COBRA subsidy, including model ARP COBRA notices and COBRA election forms and Frequently Asked Questions regarding COBRA premium assistance. The deadline for providing notice to Assistance Eligible Individuals who previously incurred an involuntary termination of employment or a reduction in hours COBRA qualifying event is May 31, 2021.
Who is Eligible for COBRA Premium Assistance?
The DOL FAQs help to clarify eligibility for the COBRA subsidy. Premium assistance is available to "Assistance Eligible Individuals" who incurred a COBRA qualifying event due to an involuntary termination of employment or a voluntary or involuntary reduction in hours and who elect COBRA coverage.
An employee's reduction in hours includes reduced hours due to a change in an employer's hours of operations, a change from full-time to part-time status or taking a leave of absence, as long as the individual remains an employee. Unfortunately, the FAQs do not provide additional guidance on what constitutes an involuntary termination of employment. Because the new model COBRA election form to request premium assistance requires a qualified beneficiary to attest that his/her termination was involuntary (or that his/her hours were reduced), employers may be able to rely on this attestation rather than be required to make the determination itself. Hopefully future IRS or DOL guidance will clarify.
Who is Not Eligible for COBRA Premium Assistance?
Individuals who are eligible for other group health coverage, either through a new employer or through a spouse's group health plan, or who are eligible for Medicare are not eligible for premium assistance. Participation in a Flexible Spending Account ("FSA") does not render an individual ineligible for premium assistance.
If the employee's termination of employment was for gross misconduct, the employee and any dependents would not qualify for COBRA continuation coverage or the premium assistance.
What Notice Requirements Apply Under the ARP?
The ARP imposes the following notice requirements on group health plans and issuers:
- General notice of COBRA premium assistance to qualified beneficiaries who incur an involuntary termination of employment or a reduction in hours between April 1, 2021 and September 30, 2021.
- A notice of a special COBRA election for qualified beneficiaries who incurred an involuntary termination of employment or a reduction in hours prior to April 1, 2021 and whose maximum COBRA election period (typically 18 months) has not expired, which generally means qualifying events prior to October 1, 2019. This notice is required by May 31, 2021, which is 60 days from the April 1, 2021 start date for premium assistance. An employer is not required to send notice of the special extended COBRA election period to individuals who do not satisfy the criteria listed above.
- Notice of expiration of COBRA premium assistance, including advance notice of when premium assistance will expire, expiration date, and eligibility for continued COBRA coverage paid by the COBRA beneficiary. This notice must be provided 15-45 days before the individual's premium assistance expires.
- Employers may be subject to excise taxes for failing to satisfy COBRA continuation requirements. This tax could be as much as $100 per qualified beneficiary, but not more than $200 per family, for each day that the employer is in violation of the COBRA rules.
- The DOL has developed model notices that are available at https://www.dol.gov/cobra-subsidy.
The DOL FAQs clarify that the ARP COBRA subsidy notice and election deadlines are not impacted by the time extensions previously issued by the IRS, Department of Treasury, and the DOL for certain actions related to health coverage under private-sector employment-based group health plans. This means that employers have until May 31, 2021 to send the special COBRA election notices for individuals who qualify for an additional election opportunity under the ARP and that employees and their qualified family members who qualify for the special election opportunity have 60 days after the notice is provided to elect COBRA.
The DOL guidance and model forms are very helpful in providing group health plans, employers, and employees certain missing details regarding COBRA subsidy eligibility, duration, deadlines and notice requirements. The DOL has jurisdiction over COBRA notices. Additional guidance is still expected from the IRS and Treasury regarding other COBRA rules including the premium tax credits for ARP premium assistance and the definition of involuntary termination of employment.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.