In the American Rescue Plan Act (the “Relief Act”), a subsidy for the payment of COBRA premiums was added for the period beginning on April 1, 2021, through September 30, 2021. Unlike previous COBRA premium subsidies, this subsidy permits assistance eligible individuals to elect COBRA at no cost to the individual for the six-month period of premium assistance.
Full elimination of premiums applies to any individual who elects COBRA as the result of losing coverage due to termination of employment (other than for gross misconduct) or to a reduction in hours of work. Such a person is referred to as an “assistance eligible individual”. The assistance eligible person definition does not exclude persons who may already be on COBRA continuation coverage due to a termination of employment or reduction in hours which occurred prior to the enactment of the Relief Act. This COBRA premium assistance applies to group health plans subject to the Employee Retirement Income Security Act or the Public Health Service Act. This means it does not apply, for example, to self-insured church plans.
Different Benefit Options and Election Deadlines
An assistance eligible individual may elect to enroll in COBRA coverage under a different benefit option than the option the individual was enrolled in immediately prior to their loss of coverage qualifying event. The individual’s election must be within 90 days after the date of the notice of the option to enroll. However, the statute does not recognize the current deadlines that were extended due to the national emergency declared as the result of the pandemic under the U.S. Department of Labor’s EBSA Disaster Relief Notices 2020-01 and 2021-01, which provides extensions for employee actions during the pandemic’s national emergency declaration.
The ability to enroll in a different health coverage option applies only to an assistance eligible individual who did not voluntarily terminate their employment and only if:
- The employer has determined that it will allow the individual to enroll in different coverage,
- The premium for the different coverage is less than or equal to the premium for the coverage in which the individual is currently enrolled,
- The different coverage offered to the individual is also offered to similarly situated employees,
- The different coverage is not an “excepted benefit” (such as dental only or vision only), and
- The group health plan is not a qualified small employer health reimbursement arrangement or flexible spending account.
Premium Assistance Ends
This premium assistance for an assistance eligible individual ends on either the first day when the individual is eligible for coverage under any other group health plan (excluding eligibility for excepted benefits, such as dental or vision, or a flexible spending account or a qualified small employer health reimbursement arrangement), or the first day the individual is eligible for benefits under Medicare. (This is different than the normal Medicare-based termination of COBRA coverage, where the statute requires the individual to be entitled to Medicare benefits.) The premium assistance ends either when the individual’s maximum 18-month COBRA period expires or when the temporary assistance under the current statute expires on September 30, 2021, whichever comes first.
The assistance eligible individual is required to notify the group health plan when that individual becomes eligible to be covered under another group health plan. The notice will be in the form and within the time as specified by the U.S. Department of Labor.
Premium Assistance and Current or Recent COBRA Qualified Beneficiaries
Assistance eligible individuals who do not have a COBRA coverage election in effect on April 1, 2021, but who would qualify as an assistance eligible individual – such as individuals who previously elected COBRA continuation coverage and then discontinued such coverage before April 1, 2021 – may now elect to continue COBRA coverage in a new election period. Employers will need to again offer such assistance eligible individuals the right to elect to use the COBRA continuation coverage with the premium assistance during the period that begins on April 1, 2021, and ends 60 days after the date the employer provides such individuals with the new COBRA election notice with respect to the premium assistance. This will require a new COBRA notice form and election form to be submitted, and employers will need to:
- Review individuals who previously were eligible for COBRA coverage as the result of a termination of employment or reduction in hours,
- Identify which of those individuals voluntarily terminated employment, and
- Identify which of such assistance eligible individuals dropped COBRA coverage prior to April 1, 2021, but still would have COBRA eligibility prior to expiration of their maximum duration of coverage of 18 months.
Employers should start reviewing their records to identify the assistance eligible employees and which of those voluntarily terminated.
Employers will want to prepare to deliver the notices in such a manner as to know when the notices are received by the individuals. Persons who elect COBRA continuation coverage during this extended election period will have their coverage start on April 1, 2021, and such coverage will not extend beyond the maximum duration of COBRA coverage for such individual based on their original qualifying event.
New Notice and Election Requirements
The COBRA notices regarding premium assistance will be treated as sufficient if they include additional written notifications describing the availability of premium assistance with respect to the coverage and the availability of the option to enroll in different coverage. This is only for COBRA notifications related to assistance eligible individuals. Do these special notices have to go to all individuals who lose coverage due to termination of employment or reduction in hours to be safe? The Relief Act specifically indicated that these new COBRA notices for assistance eligible individuals can be compiled by either modifying the standard COBRA notice or with an additional disclosure included with the normal COBRA notice and election form.
The new separate election form (or the additional disclosure) for assistance eligible individuals must include:
- The forms necessary for establishing eligibility for premium assistance,
- The name, address and telephone necessary to contact the plan administrator or the persons maintaining relevant information related to the premium assistance,
- A description of the extended election for assistance eligible persons who previously elected COBRA or dropped COBRA coverage,
- A description of the obligation of the assistance eligible person to notify the group health plan or its administrator of the individual’s eligibility for other group health care plan coverage.
The penalty on the assistance eligible individual for failing to notify the plan administrator of the individual’s eligibility for other group health care plan coverage is 110% of the premium assistance the individual receives as a federal tax penalty under section 6720C of the Code.
The additional notice also must describe and display in a prominent manner the assistance eligible individual’s right to a subsidized premium, any conditions on entitlement to the subsidized premium, and a description of the option that the qualified beneficiary has to enroll in different coverage, if the employer permits the individual to elect different coverage.
The new notices with respect to the premium assistance available to assistance eligible individuals must be provided to any qualified beneficiary who is an assistance eligible individual entitled to elect COBRA coverage prior to April 1, 2021. Such notices must be delivered within 60 days after April 1, 2021, or prior to May 31, 2021. Failure to deliver this notice is subject to the penalties for failure to meet the normal COBRA notice requirements and related penalties. Sample notices and model forms are directed to be issued within 30 days of enactment of the Relief Act, or by Sunday, April 11, 2021.
Normal COBRA notices and elections for individuals obtaining the right to elect COBRA coverage are not required to contain the premium assistance disclosures and may continue with the standard disclosure related to availability of coverage in the marketplaces under the Affordable Care Act. However, the Relief Act specifically noted that the other COBRA notices are subject to the requirements of the Secretaries of Labor, Treasury, and Health And Human Services to provide guidance with respect to such notices. Thus, it appears employers should also expect guidance on the general COBRA notice and election forms for individuals who are obtaining COBRA coverage due to Medicare eligibility, divorce, ceasing to qualify as a dependent, and for retiree health coverage, the employer’s bankruptcy. The most recently issued model notices did not consider the pandemic-related extensions which alter obligations under COBRA.
Duration of Premium Assistance
The premium assistance extends from April 1, 2021, through September 30, 2021, under the Relief Act. Under previous legislative relief, initial deadlines were often extended or assistance was re-authorized. We will need to wait and see whether this deadline remains firm or if it is extended by subsequent legislation.
Employers Need to Prepare to Provide Notices of Termination of Premium Assistance
Nevertheless, employers will need to prepare to provide any assistance eligible individual whose COBRA coverage has not terminated (because the individual became covered by another group health plan) with a notice about termination of the premium assistance. This notice about termination of the premium assistance must tell the individual that the premium assistance will expire soon, prominently identify the date of the expiration, and tell the individual that they may be eligible for coverage without any premium assistance through COBRA continuation coverage or coverage under another group health plan.
This notice of termination of premium assistance must be provided during the period that begins on the date that is 45 days before the premium assistance coverage ends, and no later than 15 days after such premium assistance coverage ends. So, if the expiration date of September 30, 2021, remains firm, the notice of termination of premium assistance must be provided between August 16 and October 15, 2021. In order to avoid complaints regarding not providing notice with sufficient time to secure new coverage, employers may want to consider providing the notice prior to September 30, 2021. Model termination of premium assistance notices are to be issued by April 26, 2021.
Individual’s Obligation to Notify Employer/Plan Administrator
An assistance eligible individual is subject to an excise tax penalty if the individual fails to provide the group health plan/employer with a notice of their ceasing to be eligible to receive COBRA assistance due to coverage under another group health plan. Failure to provide this notice by the assistance eligible individual results in a penalty of $250 for each failure, and if the failure is intentional or fraudulent, the penalty is the greater of $250 or 110 percent of the premium assistance provided to the individual under section 9501(a)(1)(A) of the American Rescue Plan Act of 2021.
The new excise tax penalties were added under Code section 6720C, as amended. This penalty can be excused if the employee demonstrates that the failure was due to reasonable cause and not willful neglect. (Code section 6720C(c)). Thus, individuals have an incentive to notify a former employer of their new employer-based coverage. Employers may want to include information on this potential penalty in the notice to employees regarding the availability of the premium assistance.
The regulating agencies are directed to provide guidance regarding the premium assistance requirements. Potential candidates for such guidance includes concepts not in current COBRA such as what is a “voluntary termination” and are “good reason” terminations voluntary or involuntary as a starting point. (Relief Act 9501).
Failure to Provide Premium Assistance
If an assistance eligible individual pays a COBRA premium when the individual should be receiving the COBRA premium assistance, the employer or person receiving such erroneous payment is required to reimburse such assistance eligible individual. If the employer reimburses the assistance eligible individual for the erroneously paid COBRA premium within 60 days of receipt of the erroneous payment, the recipient making the reimbursement is allowed the credit for the premium assistance for any payment made to the employee.
Financing the Premium Assistance Via a Refundable Tax Credit
The premium assistance provided by the employer is reimbursed by a tax credit added under new Code section 6432. This credit applies to the employer’s share of the hospital insurance premium deducted as part of the FICA taxes in the amount of 1.45% of the employees’ wages. The credit is a dollar-for-dollar credit for the amounts that would have been paid as COBRA premiums by assistance eligible individuals during each calendar quarter. The premiums waved as COBRA assistance are treated as paid by the employer for purposes of claiming the tax credit on their payroll taxes. If the amount of credit exceeds the amount the employer pays as its share of the hospital insurance taxes as part of FICA taxes, then the excess amount is a tax credit the employer must claim. The excess credit is refundable. Credit may be advanced to the employer as an offset to payroll deposits. Any claim for credit in excess of the amount due to the employer will be treated as an underpayment of tax is subject to assessment of penalties and interest.
An employer claiming a credit for premium assistance may not also claim a credit on the same amounts as paid as emergency paid sick leave or the extended Family and Medical Leave Act emergency leave under the Families First Coronavirus Relief Act or under the CARES Act as part of the wages for which credits are requested under such acts or the paid family leave act credits under new Code sections 3131 and 3132. Claiming the credit for premium assistance is subject to review by the IRS for a five-year period following the date the tax return claiming the credit is filed.
The credit for premium assistance applies only with respect to premiums and wages paid on or after April 1, 2021.
Impact of COBRA Premium Assistance on Individuals
An individual who receives premium assistance may not receive an advance payment of the credit for health insurance costs incurred by the individual for months for which the individual receives premium assistance while the premium assistance is in effect after April 1, 2021.
Individuals who receive premium assistance are not required to include the premium assistance in their gross income for individual income tax purposes.