ARPA Provides for Full COBRA Premium Subsidies

Ryley Carlock & Applewhite
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On March 11, 2021, the American Rescue Plan Act of 2021 (the “ARPA”) was signed into law. Under Section 9501 of ARPA, employers will be required to provide a tax-free subsidy to certain employees and their qualified beneficiaries equal to 100% of their COBRA continuation premium. Generally, COBRA premiums are paid by the employee following an event that causes the employee to lose his or her health care coverage (i.e. involuntary termination or a reduction in hours).

Under ARPA, Assistance Eligible Individuals (“AEIs”) are eligible to receive the COBRA subsidy. An individual is an AEI if:

  1. He or she is involuntarily terminated for any reason other than gross misconduct; or
  2. He or she involuntarily experiences an hours reduction; or
  3. He or she voluntarily reduces hours as a result of COVID-19 safety concerns (there may be some ambiguity as to whether an individual meets this standard).

The subsidy is available to anyone meeting either of the following requirements:

  1. Any eligible individual who is enrolled in COBRA (or will enroll in COBRA) for coverage from April 1, 2021 to September 30, 2021 (the “Subsidy Period”); and
  2. Any former employee (who is otherwise an eligible individual) who did not elect COBRA coverage or dropped COBRA coverage prior to April 1, but would otherwise be within the employee’s 18-month COBRA coverage during the Subsidy Period.

The maximum COBRA subsidy under ARPA is equal to 100% of the plan’s premium for the 6-month Subsidy Period. The subsidy can end earlier if:

  1. The individual’s original COBRA maximum period of coverage is exhausted, or
  2. The individual becomes eligible for Medicare or group health plan coverage.

In the second scenario, the individual must provide notification to the group health plan if an eligibility event occurs or be assessed a penalty of the greater of $250 or 110% of the premium assistance provided, unless reasonable cause can be established.

To comply with ARPA, employers must provide notice to all eligible employees by May 31, 2021. Model notices have been provided by the DOL and can be found at https://www.dol.gov/agencies/ebsa/laws-and-regulations/laws/cobra/premium-subsidy.

We recommend providing notice to any individual who might be eligible to receive the subsidy, along with DOL’s Summary of the COBRA Premium Assistance Provisions under the American Rescue Plan Act of 2021, which includes the Request for Treatment as an Assistance Eligible Individual. The request to be treated as an AEI must be completed by the individual and returned within sixty (60) days of receipt in order for the individual to be considered for the subsidy. After the employer receives the request, the employer must determine whether the individual is an AEI and is eligible to receive the subsidy. Providing notice to anyone who is potentially eligible to receive the subsidy minimizes the employer’s exposure to penalties for failure to provide notice.

The notices must include written notification to the recipient in “clear and understandable language” of the availability of premium assistance to any individual who (i) becomes eligible to elect COBRA between April 1, 2021 and September 30, 2021, or (ii) suffered a job loss or reduction of hours followed by a loss of coverage and became eligible for COBRA before April 1, 2021, but is still eligible for benefits during the Subsidy Period. The requirement that the notification be clear and understandable suggests that employers should use the DOL model forms with minimal modifications.

The additional notification requirements under ARPA may be met by amendment of existing notice forms or by inclusion of a separate document with the notice otherwise required. The forms necessary for establishing eligibility for premium assistance should include: the name, address, and telephone number necessary to contact the plan administrator and any other person maintaining relevant information in connection with such premium assistance; a description of the extended election period; a description of the obligation of the qualified beneficiary to notify the group health plan and the penalty for failure to carry out the obligation; a description, displayed in a prominent manner, of the qualified beneficiary’s right to a subsidized premium and any conditions on entitlement to the subsidized premium; and a description of the option of the qualified beneficiary to enroll in different coverage if the employer permits such beneficiary to elect to enroll in such different coverage.

The plan administrator will also need to provide to eligible individuals written notice in clear and understandable language regarding (i) the expiration of the premium assistance benefit; (ii) the prominent identification of the expiration date; and (iii) the individual’s eligibility for coverage without any premium assistance through COBRA continuation coverage; or coverage under a group health plan, if applicable. This notice must be provided between 15 and 45 days before the subsidy expires. Model notices for this notification have been made available by the DOL.

The employer to whom premiums are payable for continuation coverage under ARPA will receive a credit against the payroll tax imposed by IRC Section 3111(b) (the credit will be claimed on Form 941) or so much of the tax imposed under IRC Section 3221(a) as is attributable to the rate in effect under Section 3111(b), for each calendar quarter an amount equal to the premiums not paid by AEIs for coverage by reason of Section 9501(a)(1) with respect to such calendar quarter.

Employers with operations in states that have adopted their own version of the COBRA laws (e.g. California and New York) will want to check for additional COVID-19 relief provisions under those laws.

Access the full House bill at https://www.congress.gov/bill/117th-congress/house-bill/1319/text#toc-H990C5793DC6540A9A4BB2359F93F48BC.

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