On March 11, President Biden signed the American Rescue Plan Act of 2021 (ARPA), the third economic relief package enacted during the pandemic to provide financial support to individuals, businesses, and governments. Among other provisions, ARPA includes a 100% COBRA subsidy for up to six months (during the period of April 1, 2021 through September 30, 2021) for individuals who lost their health coverage because of an involuntary termination of employment or a reduction in hours. Eligible individuals who did not initially elect COBRA or who let COBRA lapse will have a second chance to elect coverage. In light of these provisions, it’s prudent for employers to begin preparing for COBRA subsidies.
How Employers Can Begin Preparing For COBRA Subsidies
An employer’s role in administering these subsidies will vary depending on the funding arrangement of the plan and what responsibilities the COBRA administrator, if any, is willing or able to take on. The Departments of Labor and Treasury are expected to issue guidance in the next few weeks. In the meantime, here is a list of potential action items and considerations to help employers prepare:
- Determine which of your employees and their family members lost medical/dental/vision coverage (health FSAs are excluded) within the past 18 months (on or after November 1, 2019), due to an involuntary termination of employment or reduction in hours. These are considered “Assistance Eligible Individuals” or “AEI”s.
- Individuals who lost coverage due to other qualifying events, such as a child dependent aging out of the plan, are not eligible for the subsidies.
- Be prepared, or coordinate with your COBRA administrator, to send a notice of the availability of premium assistance to your AEIs and their covered family members by May 31 ‒ the 60-day window that begins April 1, 2021 (the first day of the month following enactment of ARPA).
- Standard COBRA election paperwork provided to AEIs must include updated notices to explain the subsidies under the ARPA.
- AEIs that lost coverage on or after November 1, 2019 but did not elect COBRA or let COBRA lapse will have until 60 days after receipt of the new notice to elect coverage.
- The Department of Labor (DOL) intends to issue model notices in-April.
Understanding COBRA Subsidies
The subsidies are only available on a prospective basis, and are not retroactive to the date coverage was lost. Further, the subsidy will not extend beyond the earlier of the original maximum COBRA coverage period or September 30, 2021. Certain qualified beneficiaries still have the option for a retroactive election of COBRA under the DOL extension for COBRA elections, but this will not impact the availability of the subsidies for the period of April 1, 2021 through September 30, 2021.
Unlike normal COBRA election rules, employers can (but are not required to) allow employees to enroll in different health plans from the ones they were previously enrolled in. This is optional and at the employer’s discretion. The employer (if self-insured), insurer (if fully insured) or multi-employer plan sponsor will offset the cost of providing subsidized coverage by claiming credits on their quarterly taxes equal to the total amount of premiums they subsidized. The responsibilities of the employer to their employees are listed below:
- Employees or family members who are, or become, eligible for other group health coverage or Medicare are not eligible for subsidies. An individual is required to notify their health plan of any loss of eligibility for a subsidy.
- Employers will be required to send a notice to an individual whose subsidy is set to expire between 45 and 15 days of the expiration date (unless the reason is due to availability of other group health coverage or Medicare). The DOL intends to issue a model notice for this purpose in April.
- If an employer relies on a COBRA administrator, the employer should confirm what information the administrator needs from the employer, whether the administrator will be mailing out the new required notices and if the administrator will be providing the information the employer or its insurer will need to claim tax credits.
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