Action Required: COBRA Subsidies under the Rescue Plan Act

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American Rescue Plan Act of 2021 (H.R. 1319, the “Rescue Act”) was signed into law by President Biden on March 11, 2021. The Rescue Act addresses a number of issues caused by the lingering pandemic, including the impacts of layoffs. Essentially all major medical plans subject to COBRA will now be required to offer subsidized COBRA coverage to employees who were involuntarily terminated. This is an enormous benefit for those most economically impacted by the pandemic but adds to the burden of compliance for plan administrators.

Which Plans must offer the COBRA subsidy? All group health plans subject to COBRA (other than health FSAs) must provide subsidized COBRA coverage to assistance eligible individuals. Most HRA arrangements will be subject to COBRA and therefore must offer the subsidy. However, because QSHERAs are not subject to COBRA, they do not have to provide a subsidy.

Who is an Assistance Eligible Individual (an AEI)? An individual is an AEI if: (1) he or she became eligible for COBRA due to an involuntary termination or a reduction in hours, and (2) a portion of his or her maximum COBRA continuation coverage period falls during the period beginning April 1, 2021, and ending September 30, 2021. This includes individuals who previously declined COBRA continuation coverage or whose COBRA coverage ended because of nonpayment of premiums. An individual is not an AEI if they triggered COBRA continuation coverage due to voluntary termination, retirement, or death, or if their COBRA coverage terminates because of other group health coverage or other circumstances. Individuals eligible to enroll in Medicare also are not eligible for a subsidy, even if they are otherwise eligible for COBRA continuation coverage.

What does an AEI qualify for under the Rescue Act? AEIs who elect COBRA continuation coverage will receive a 100% subsidy of their COBRA continuation coverage premiums for medical, dental, and/or vision coverage for the period beginning April 1 and ending on the earlier of September 30, 2021 (or the end of their maximum COBRA continuation period). For individuals that experience a qualifying event after April 1, 2021, they must be notified of the subsidy in the initial election paperwork. Individuals who had a qualifying event before April 1, 2021, but who have not yet elected COBRA, who previously declined COBRA continuation coverage, or whose coverage ended because of nonpayment of premiums, but who are still within their maximum COBRA coverage period (generally 18 months) will be given at least 60 days to re-enroll in COBRA coverage effective April 1, 2021, and receive the subsidized coverage for the duration of the subsidy period.

Who pays for the subsidy? The AEI will not be required to pay premiums during the subsidy period. The cost of the COBRA premium must be advanced by the employer of a self-insured plan, the plan of a multi-employer plan, or the insurer of a fully-insured plan. The advancing entity then may recover whatever amount the employee would have paid but for the Rescue Act by claiming a tax credit against its quarterly Medicare tax liability. If the subsidy paid exceeds the taxes due, then a refund may be requested. If a participant who is eligible for the subsidy pays their premium during the subsidy period, then the employer, plan, or insurer is required to refund any premium amounts paid.

Can an AEI choose a different coverage than the one in which they were enrolled? Yes, but only if the employer elects to permit such a change. If the employer elects to permit changes, then the AEI may change coverage within 90 days of receiving notice of availability of COBRA continuation coverage but only if: (1) the different coverage is available to similarly situated employees of employer at time of election, (2) the premium of different coverage does not exceed the premium for coverage that the individual was enrolled in at time of qualifying event.

Are there any required notices? Yes, of course; what would an act be without new notice requirements?! Group health plans must notify AEIs of the availability of the subsidy, of any extended election period, and also warn them before the subsidy ends. The DOL will release model notices for plan administrators to:

  • Notify AEIs of the availability of subsidy
  • Notify AEIs of extended election period for COBRA coverage
  • Notify AEIs when the subsidy will expire

Plan administrators should carefully evaluate their past terminations and reductions in hours to determine who must be offered coverage by the new deadlines. There are many nuances to the new rules. Our experienced benefit attorneys can help you navigate implementation of these provisions.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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