COBRA Subsidies and the American Rescue Plan Act – What Employers Need To Know

On March 11, 2021, the American Rescue Plan Act (ARPA) was signed into law, the first COVID-19 relief package under the Biden administration. The package includes provisions similar to other COVID aid bills – an extension of unemployment assistance, payroll tax credits for employers who provide paid leave for COVID-related absences, and expanded Paycheck Protection Plan (PPP) eligibility for non-profit organizations. ARPA, however, also contains something different than its predecessors – no cost health insurance continuation under the Consolidated Omnibus Budget Reconciliation Act (COBRA) and applicable state law between April 1, 2021 and September 30, 2021 for “Assistance Eligible Individuals.” Not only must employers cover the initial cost of this benefit, but they are also tasked with several related notification requirements, one of which has a fast-approaching deadline.

Who is an “Assistance Eligible Individual”?

The subsidy applies to both insured and self-insured plans subject to COBRA, as well as self-funded and insured plans that are subject to continuation coverage under Cal-COBRA. ARPA defines an “Assistance Eligible Individual” as either:

1. An employee who is eligible or becomes eligible for COBRA/Cal-COBRA coverage any time between April 1, 2021 and September 30, 2021, as a result of an involuntary termination or a reduction in hours;¹ An employee who voluntary resigns from their position or is terminated for “gross misconduct” is not considered an “Assistance Eligible Individual.” What constitutes a “voluntary” termination is currently not entirely clear.  Likewise, the COBRA statute does not include a definition of “gross misconduct.” Employers are advised to apply this exception judiciously and consult legal counsel before determining that someone is ineligible for benefits continuation under federal or state law.
2. A former employee who declined COBRA/Cal-COBRA coverage, or dropped coverage, and who would otherwise be eligible for COBRA/Cal-COBRA on April 1, 2021. Essentially, ARPA creates a second opportunity for former employees (and their dependents) to elect COBRA/Cal-COBRA continuation benefits provided that their original eligibility was due to an involuntary termination or a reduction in hours. Eligible participants have 60 days from the date of notification to elect coverage, retroactive to April 1^st.

ARPA does not extend the length of a person’s eligibility for COBRA/Cal-COBRA. Rather, it provides relief from payment when their eligibility period includes time between April 1, 2021 and September 31, 2021. For example, a former employee whose COBRA eligibility would otherwise terminate at the end of June 2021 could only sign up for three months (April, May, June) of no cost coverage under the ARPA COBRA subsidy.

Who Pays for the COBRA Subsidy?

In most cases, the employer fronts the cost of continuing health care coverage. Reimbursement from the federal government is made in the form of a tax credit against the employer’s quarterly Medicare payroll taxes. Alternatively, if COBRA premiums are normally paid directly to the carrier, the insurance company is eligible for the payroll tax credit.

Further information regarding the tax credit is expected from the IRS and the Department of the Treasury.

What Do Employers Need to Do Now?

First, employers must work with their benefits department or outside plan administrators to amend existing COBRA notification documents so that eligible participants are aware that the COBRA subsidy is available. Second, qualifying former employees and their dependents who declined or dropped their coverage must be notified of the COBRA subsidy and their new enrollment opportunity. Notification to all qualifying employees must be provided by May 31, 2021.

Both notices must provide specific information, including the name, address, and telephone number of the plan administrator, a prominently featured description of the qualified beneficiary’s right to a subsidized premium, and a description of the obligation of the beneficiary to inform the plan administrator when they are no longer eligible for the subsidy. Additionally, individuals who sign up for the COBRA subsidy must later receive a separate warning notice, in writing, 15-45 days before the premium assistance benefit is set to expire.

Resources

The Department of Labor has released model notices that address each of the notification requirements, and helpful FAQs that further outline employer obligations. Please do not hesitate to contact the team at Holden Law Group for additional guidance and support.

¹An employee who voluntary resigns from their position or is terminated for “gross misconduct” is not considered an “Assistance Eligible Individual.” What constitutes a “voluntary” termination is currently not entirely clear.  Likewise, the COBRA statute does not include a definition of “gross misconduct.” Employers are advised to apply this exception judiciously and consult legal counsel before determining that someone is ineligible for benefits continuation under federal or state law.