Under the American Rescue Plan Act of 2021 (the “Act”), certain individuals who are eligible for COBRA coverage as a result of an involuntary termination of employment or reduction in hours may be eligible to receive a 100% subsidy for COBRA coverage for a six-month period beginning April 1, 2021 through September 30, 2021 (“Premium Subsidy Period”). Under the Act, a group health plan (including medical, dental and vision plans but excluding health care flexible spending accounts) must fully pay the cost of COBRA premiums during this six-month period, and employers will be reimbursed through a refundable payroll tax credit. The Act imposes new notice requirements on sponsors of group health plans and offers new election rights to COBRA qualified beneficiaries who may have previously rejected COBRA.
Who is Eligible?
The COBRA premium subsidy is available to “Assistance Eligible Individuals” (“AEIs”). AEIs include individuals (employees and their eligible dependents) who (i) have lost group health plan coverage as a result of an involuntary termination of employment (other than for gross misconduct) or a reduction in hours and (ii) are, or could have been, eligible for COBRA between April 1, 2021 and September 30, 2021. Employees who voluntarily terminated employment or who are eligible for COBRA coverage as a result of divorce, death, Medicare eligibility or loss of dependent status are not eligible for the COBRA premium subsidy.
- The COBRA premium subsidy is available to those employees who lost employer group health coverage because of an involuntary termination, stretching back to when the COVID-19 pandemic began. For example, an employee who lost coverage in April 2020 may be eligible for the COBRA premium subsidiary because their 18-month maximum COBRA period, which has not expired, includes the Premium Subsidy Period.
- Further guidance is needed to determine whether employees who voluntarily reduced their hours or accepted early retirement incentives will be considered AEIs.
New Election Period
For those AEIs who have elected COBRA, the Act provides a premium holiday for the Premium Subsidy Period. AEIs who did not elect COBRA coverage during their original election period or who elected COBRA coverage but subsequently terminated it will have another opportunity to elect COBRA coverage. Such individuals must be offered an additional COBRA election period of at least 60 days to take advantage of the COBRA premium subsidy.
This special election allows AEIs to elect COBRA coverage solely for the Premium Subsidy Period, without electing COBRA retroactive to the date of the original loss of coverage. Since COBRA election deadlines have been extended during the pandemic as a result of guidance from the Department of Labor, many employees are still within their original COBRA election periods. The maximum COBRA period is not extended for any AEI who takes advantage of this special election; it is still measured from the date of the original qualifying event.
Plan Notice Requirements
The Act imposes new notice requirements on plan administrators with respect to the COBRA premium subsidy:
- Additional Information for COBRA Election Notices. Plan administrators must modify COBRA election notices for AEIs who become eligible for COBRA during the Premium Subsidy Period to notify them of the availability of the premium subsidy and, if applicable, the option to enroll in a lower priced plan option. The notice also must describe the individual’s obligation to provide notice to the employer if the individual becomes eligible for other group health coverage or Medicare, and of the penalty for failure to provide such notice. The additional information can be incorporated into the election notice or can be provided in a separate document included with the election notice.
- Notice of Extended Election Period. For AEIs who became entitled to COBRA before April 1, 2021, including those individuals who may have previously rejected or terminated COBRA coverage, plan administrators must provide notice of the new election period and availability of the COBRA premium subsidiary no later than May 31, 2021.
- Notice of Expiration of Premium Subsidy. Plan administrators must provide a notice to AEIs stating that their COBRA premium subsidies will expire soon, the date the COBRA premium subsidy will expire, and that they may be eligible for coverage without premium assistance through COBRA 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 COBRA premium subsidy will expire.
The Act directs the Department of Labor to issue model notices within 30 days of its enactment.
Payroll Tax Credits
Similar to the coverage provided under the CARES Act for paid family lave, employers who fund the COBRA premium subsidies are eligible for credits against their Medicare taxes. These tax credits will be calculated quarterly, and may be refundable to the extent the amount of the credit exceeds the employer’s Medicare liability for any calendar quarter. The credit may also be advanced pursuant to instructions to be issued by the Secretary of Treasury.
What should employers and plan administrators do now?
Employers and plan administrators should immediately start planning for compliance with the COBRA subsidy provisions, including
- Identify the employees likely to be AEIs.
- Contact vendors and COBRA administrators to discuss how this subsidy will be administered and ensure that COBRA coverage will not be terminated for nonpayment of premiums during the Premium Subsidy Period.
- Review all COBRA communications and update election notices and communications to employees to include the requisite information. Contact third party administrators to ensure that the requisite notices are sent to AEIs.