President Biden signed the American Rescue Plan Act of 2021 ("ARPA") into law on March 11, 2021. Among its provisions that seek to provide relief to individuals affected by the COVID-19 pandemic is a tax-free subsidy that will pay 100% of the COBRA continuation premium for individuals who are eligible for COBRA as a result of an involuntary termination of employment or a reduction in hours. The premium assistance will last from Apri1 1, 2021 through September 30, 2021 and will subject sponsors of group health plans to a number of new notice requirements. Premiums for COBRA qualified beneficiaries who are eligible for the premium assistance will be paid by the federal government to employers through credits against employers' Medicare taxes. Employers and COBRA plan administrators must quickly prepare for new notifications and administration changes.

 

Assistance Eligible Individuals

The COBRA premium assistance under ARPA is available to individuals who were involuntarily terminated from their employment or have experienced a reduction in hours and who are, or could have been, eligible for COBRA between April 1, 2021 and September 30, 2021 (the "Premium Assistance Period").

Assistance eligible individuals include COBRA qualified beneficiaries who experienced an involuntary termination of employment or a reduction in hours and who have COBRA coverage during the Premium Assistance Period. Premium assistance is not available to COBRA qualified beneficiaries who voluntarily terminated their employment or who experienced any of the other COBRA qualifying events such as divorce, death, or loss of dependency status.

In addition, individuals who do not have a COBRA election in effect on April 1, 2021, but who would have been an assistance eligible individual if an election were in effect, including an individual who discontinued COBRA coverage prior to April 1, 2021, will be given a new opportunity to elect COBRA coverage—another bite at the COBRA apple—to take advantage of the premium assistance during the Premium Assistance Period. This new election period begins on April 1, 2021, and ends 60 days after the group health plan administrator provides a notice to such individuals of this new election opportunity. The newly elected coverage will be retroactive to April 1, 2021, and can last through the end of the individual's normal COBRA coverage period measured in connection with the original qualifying event of an involuntary termination of employment or reduction in hours (although the premium assistance will end no later than September 30, 2021).

If an assistance eligible individual erroneously pays a premium during the Premium Assistance Period, the employer must refund the premium to the individual within 60 days after the individual elects COBRA coverage.

An individual ceases to be eligible for the premium assistance upon the earliest of the following dates:

 

  • the date the individual becomes eligible for Medicare or another group health plan (other than coverage under an excepted benefit, a flexible spending arrangement, or a qualified small employer health reimbursement arrangement); or
  • the date following the expiration of the individual's normal COBRA coverage period measured in connection with the original qualifying event of an involuntary termination of employment or reduction in hours.

Individuals are required to notify the plan administrator if they become eligible for Medicare or another group health plan. Individuals who fail to do so can be required to pay a penalty of $250 for each such failure, subject to an exception for reasonable cause and subject to increased penalties in the case of fraud.

 

In connection with someone becoming an assistance eligible individual, a plan is allowed to permit the individual to change health plan options from the option under which they were covered at the time of their involuntary termination of employment to a lower priced plan option. However, the plan is not required to offer this change of election opportunity.

Notice Requirements

The ARPA COBRA premium assistance provision imposes a number of new notice requirements on plan administrators.

 

  • Plan administrators must modify COBRA election notices for individuals who become eligible for COBRA during the Premium Assistance Period to notify them of the availability of the premium assistance and, if applicable, the option to enroll in a lower priced plan option.
  • Individuals who previously rejected or terminated COBRA coverage to whom a new election period must be offered (as discussed above) must be notified of their new election period and the availability of the premium assistance. This notice must be provided by May 31, 2021.
  • Plan administrators must provide a notice to assistance eligible individuals stating that their subsidies will expire soon, the date the premium assistance will expire, and that they may be eligible for coverage without premium assistance through COBRA coverage or through coverage under another group health plan. This notice must be provided no more than 45, but no less than 15, days before the premium assistance will expire.

ARPA directs the Secretary of Labor, in consultation with the Secretaries of the Treasury and Health and Human Services, to issue model notices to assist plan administrators with these new notice requirements. Model notices with respect to eligibility for premium assistance must be issued no later than 30 days after enactment of ARPA. A model notice with respect to the expiration of premium assistance must be issued no later than 45 days after enactment of ARPA.

 

Tax Credits

The employer or insurance carrier to which an assistance eligible individual would have paid their COBRA premium is eligible for a credit against Medicare taxes. The credits will be provided each quarter with respect to the amount of the premiums not paid by the assistance eligible individuals. The credit is refundable to the extent the amount of the credit exceeds the employer's Medicare taxes for any calendar quarter. The credit may also be advanced pursuant to instructions provided by the Secretary of the Treasury. At this time, it is not clear how pension systems that sponsor health plans for individuals for whom they do not remit Medicare taxes will be reimbursed for the lost COBRA premiums.

 

Quick Action Needed

ARPA's COBRA premium assistance requirements are effective April 1, 2021. Employers and COBRA plan administrators should immediately start identifying individuals who are currently on COBRA coverage as a result of an involuntary termination or reduction in hours, or who could have been on COBRA coverage for these reasons for any month during the Premium Assistance Period. The former group will have to be notified of their eligibility for premium assistance and the latter group will have to be notified of their new election right and the premium assistance opportunity. ARPA imposes strict timelines for completing these tasks. In addition, employers and plan administrators will need to modify any automatic COBRA termination processes that might terminate COBRA coverage when premiums are not received from assistance eligible individuals. Other COBRA processes and notices may also require immediate modifications in light of ARPA's requirements.

Originally Published by Ice Miller, March 2021

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.