As discussed in our prior post, under the American Rescue Plan Act of 2021, 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 (“COBRA Premium Subsidy”). Last week, the Department of Labor (“DOL”) released “frequently asked questions” (FAQs) and model notices related to the COBRA Premium Subsidy.
The FAQs shed light on the following issues:
Eligibility for Other Group Coverage
Individuals who are eligible for Medicare or other group health coverage, such as through a new employer’s plan or a spouse’s plan are not eligible for the COBRA Premium Subsidy. The FAQs make clear that eligibility for Medicaid or individual health insurance coverage through the Affordable Care Act marketplace does not disqualify an otherwise eligible individual from the COBRA Premium Subsidy. Such individuals can switch from the individual marketplace coverage to COBRA coverage and receive the premium subsidy.
COVID Extended Deadlines
The FAQs make clear that COVID extended deadlines to elect COBRA do not apply to the COBRA Premium Subsidy. In this regard, the eligible individual must elect COBRA coverage within 60 days of the election notice or will forfeit their right to elect COBRA coverage with premium assistance.
COBRA Coverage Start Dates
The FAQs confirm that eligible individuals whose qualifying event was a reduction in hours or an involuntary termination of employment prior to April 1, 2021 can elect COBRA coverage only for the period of the subsidized premiums (as of April 1, 2021) rather than back to the date of the qualifying event.
Application to State “Mini-COBRA” laws
The FAQs clarify the COBRA Premium Subsidy applies to any continuation coverage required under state “mini-COBRA” laws but does not modify the time periods for elections under state law (no second election period).
Payment of 2% Administration Fee /Refunds
The FAQs make clear that the eligible individuals cannot be charged anything for COBRA during the subsidy period, including the 2% administration fee.
If an eligible individual pays for COBRA coverage between April 1 and September 30, the FAQs provide that employers will be required to credit such amounts against future payments or provide a refund in certain circumstances.
Penalties for Failing to Comply
The FAQs indicate that employers who fail to timely provide the required notices or the subsidy may be subject to an excise tax of as much as $100 per qualified beneficiary (but not more than $200 per family) for each day that the violation continues.
Along with the FAQs, the DOL published the following Model Notices:
- Model ARP General Notice and COBRA Continuation Coverage Election Notice, for qualified beneficiaries who have qualifying events occurring from April 1, 2021 through September 30, 2021
- Model COBRA Continuation Coverage Notice in Connection with Extended Election Periods, for qualified beneficiaries who are currently enrolled in COBRA coverage, or who had a qualifying event prior to April 1, 2021 but did not enroll, or discontinued, COBRA coverage (generally, those individuals who were involuntarily terminated or had a reduction in hours occurring on or after October 1, 2019)
- Model Alternative Notice of ARP Continuation Coverage Election Notice to be used by plans subject to state “mini-COBRA” laws
- Notice of Expiration of Period of Premium Assistance, for use by plans to be provided 15-45 days before the premium assistance expires
- Summary of the COBRA Premium Assistance Provisions under the American Rescue Plan Act of 2021
The guidance confirms that employers have until May 31, 2021 to provide the Model COBRA Continuation Coverage Notice in Connection with Extended Election Periods to eligible employees.
While the FAQs and Model Notices provide helpful information on the administration of the COBRA Premium Subsidy, they fail to answer some important questions. This guidance does not address what constitutes an “involuntary termination” and whether voluntary reductions in force would be categorized as voluntary or involuntary terminations for purposes of the COBRA premium subsidy. The guidance also does not address the treatment of an employer subsidy for COBRA premiums, which is often provided under a severance plan or employment agreement.
While the guidance makes clear the COBRA Premium Subsidy does not apply if the COBRA coverage period ended before April 1, 2021 (generally qualifying events occurring before October 1, 2019), it is unclear whether an eligible individual whose COBRA coverage period was extended due to a second qualifying event or a disability extension would be eligible for COBRA Premium Subsidy.
Next Steps for Employers
Employers are encouraged to use the Model Notices to notify eligible individuals of the COBRA Premium Subsidy by May 31, 2021. Employers should work with their COBRA administrator to identify former employees who may be eligible for the subsidy.