Sponsors of group health plans have new responsibilities following the passage of the American Rescue Plan Act (“ARPA”) on March 11, 2021. Under ARPA, certain participants and beneficiaries of employer-sponsored health plans are eligible for a federal subsidy, which will cover for a limited period 100% of the premium for COBRA continuation coverage. The subsidy is also available in the case of plans covered by Florida’s mini-COBRA law, which applies to group health plans of employers having fewer than 20 employees.
The Importance of Being an “Assistance Eligible Individual”
Federally subsidized COBRA coverage is available only to a person who is an Assistance Eligible Individual (“AEI”) under ARPA. This term comprehends an employee or former employee, and any dependent, losing group health plan coverage as a result of an employee’s reduction in work hours or involuntary termination.
Persons losing coverage because of an employee’s voluntary retirement are not AEIs. Nor is anyone who is eligible for coverage under another group health plan, such as through a spouse’s employment, or for Medicare, an AEI, even though they don’t enroll in the alternative coverage. These individuals may be eligible to elect COBRA, but they will generally have to pay for the coverage themselves.
ARPA Subsidy Availability
The COBRA subsidy first became available on April 1, 2021, but can be retroactively effective to that date for AEIs having COBRA coverage at the time, who may be reimbursed for premiums they paid or receive a credit against future premiums.
In many cases, an AEI who was not already covered by COBRA at the beginning of the subsidy period will be able to elect COBRA continuation coverage retroactive to April 1, 2021, and have the cost of the coverage completely paid by the federal government, regardless of its cost or the individual’s income level.
The longest period any AEI can qualify for a subsidy is six months, and no AEI can receive a subsidy for a coverage period extending beyond September 30, 2021.
Employer Role in Payment Process
Though the federal government is ultimately responsible for the costs of COBRA premiums incurred for coverage of AEIs during the subsidy period, employers are obligated to make initial payment of the premiums on behalf of their COBRA-enrolled AEIs. Employers then recoup these outlays through refundable payroll tax credits when filing their quarterly returns for FICA tax purposes. While ordinarily, COBRA beneficiaries make direct payment of premiums for their continuation coverage, with respect to COBRA coverage during the subsidy period, employers cannot require AEIs to pay premiums to be reimbursed later.
Employers sponsoring self-insured group health plans will also recover the costs of coverage for their AEIs through payroll tax credits, as will insurance carriers covering AEIs under Florida’s mini-COBRA law, which generally does not involve employers in the payment process.
Employer Notice Requirements
Employers must provide certain notices informing AEIs of the availability of the subsidy and how to obtain it to ensure they are informed of their rights under ARPA. The U.S. Department of Labor has released model notices to help employers satisfy this requirement. Moreover, penalties of up to $100 per day for each affected AEI may be assessed against an employer who fails to deliver the required notices. An employer may also face the prospect of a civil lawsuit for recovery of medical expenses incurred by an individual who goes without insurance coverage during the subsidy period due to the employer’s failure to provide the appropriate notices.
It is important to recognize that AEIs will – in many cases – be individuals who lost coverage long before the subsidy period beginning date of April 1, 2021, even if they did not previously elect COBRA or they elected COBRA but subsequently dropped coverage. Because the maximum COBRA continuation coverage period in most circumstances is 18 months, employers review their records going at least as far back as October 2019 to determine who must be notified of their entitlement to subsidized COBRA, as an individual whose employment terminated then, and who lost coverage effective November 1, 2019, could be eligible for the subsidy, even if only for the month of April 2021.
It is advised that employers using an outside COBRA administration firm enlist its help in the process of identifying and notifying any AEIs, including family members of employees who were involuntarily terminated. No notice is required in the case of an individual whose maximum COBRA coverage period would have expired before April 1, 2021.
Timing Requirements for Notifying AEIs and for AEIs to Elect
Specific timing requirements apply to both an employer’s duty to provide notice of the ARPA subsidy and to an AEI’s election of subsidized COBRA. An AEI who previously lost coverage and did not elect COBRA, or had elected and later dropped COBRA coverage, can elect COBRA effective April 1, 2021, so long as the maximum COBRA coverage period, generally 18 months, has not by then expired. In addition, AEIs who elected and remained on COBRA as of April 1, 2021, should also be notified of their eligibility for subsidized coverage during the period April 1, 2021 until the earlier of September 30, 2021 or the date they reach the maximum duration of their COBRA eligibility.
In all of these instances, notice to an AEI must be given within 60 days after the date the individual becomes eligible for the subsidy. In short, for AEIs having an initial subsidy eligibility date of April 1, 2021, employers have only until May 31, 2021, to furnish the required notices. In the case of an AEI who experiences a qualifying event involving a reduction in hours or involuntary termination after April 1, 2021 and before September 30, 2021, an employer should provide notices regarding COBRA continuation coverage, as well as the premium subsidy, within the usual time frame for COBRA notices, generally a maximum of 44 days after the event.
An AEI has 60 days after receiving the notice to elect subsidized COBRA coverage. In claiming entitlement to the subsidy, AEIs must attest that they are not eligible for other group health plan coverage or for Medicare. In addition, they must agree to report becoming eligible for any such other coverage during the subsidy period, at which time the subsidy ceases. It is the individual’s responsibility to notify the plan sponsor about becoming eligible for other health plan coverage. Failure to elect the subsidy does not affect an individual’s preexisting right to elect unsubsidized COBRA coverage under the extended time periods granted pursuant to other COVID-related relief that may still be available to the individual.
An additional notification requirement affecting employers provides that notice of the subsidy’s pending expiration be furnished to any individual receiving an ARPA subsidy. This notice must be provided no earlier than 45 days but no later than 15 days before the subsidy is due to expire, be it September 30, 2021, or such earlier date that the individual’s maximum COBRA continuation coverage period runs out. The notice is not required in the case of an individual who ceases to be an AEI due to becoming eligible for other group health plan coverage. As with notices of the right to elect ARPA-subsidized COBRA, the Department of Labor has released model notices for informing individuals about the expiration of subsidized coverage and alternative coverage options that may be available.
Employers seeking assistance in these matters may contact me at firstname.lastname@example.org or by phone at 239-344-1192.