New guidance has been issued to clarify the Subsidized COBRA obligations imposed on employers and plan sponsors by the American Rescue Plan Act of 2021 (“ARPA”). This guidance comes at the last minute, as the deadline to send out the notices required by ARPA expires on May 31, 2021. Now is the time to double-check your compliance, as employers and plan sponsors have little time left to bring plans into compliance.
As a reminder, ARPA grants eligible individuals who lost jobs or had a reduction in hours, and their eligible family members (collectively, “Assistance Eligible Individuals” or “AEIs”), the right to continue their employer-sponsored group health plan coverage at no cost during the period from April 1, 2021 to September 30, 2021 (“ARPA Subsidized COBRA”). For more detailed explanation, please review our prior alerts discussing these new ARPA rights here:
The new guidance (Notice 2021-31) provides answers to a few (but not all) of the remaining unanswered questions:
Subsidized COBRA Is Not Limited to Medical Only
The latest guidance is explicit that ARPA Subsidized COBRA must be offered for all types of group health plans that are subject to COBRA requirements, other than health flexible spending arrangements (health FSAs). This means that vision plans, dental plans, and employee assistance programs (“EAPs”), regardless of whether the employer pays any portion of the premiums, are also covered. Employers offering vision, dental, or EAPs should make sure that they send required notices to AEIs with respect to these non-medical plans.
Offers Must Be Made To AEIs With 29-Month or 36-Month COBRA Triggers
AEIs include those who involuntarily terminated employment but became entitled to extended periods of COBRA coverage (29 or 36 months) due to one of the special extension rules (e.g., disability) or a second qualifying event. These AEIs are entitled to either 29 or 36 months of COBRA, but only if the original event was a reduction in hours or an involuntary termination of employment. This means that employers and COBRA administrators may need to go back farther in their records to identify AEIs (possibly as far back as April 2018).
Employers Must Comply if Subject to COBRA on Date of Qualifying Event
Many employers were forced to decrease their employee count last year due to the financial strain caused by COVID-19. Prior to the issuance of the latest guidance, it was unclear if an employer who used to be subject to COBRA, but who has now dropped below the 20-employee federal COBRA threshold (and is not subject to a state mini-COBRA requirement), must still comply. The short answer is yes. An employer is subject to ARPA Subsidized COBRA based on its status at the time the employee experienced the qualifying event. Therefore, if a terminated employee has COBRA rights due to the employer being subject to COBRA at the time of the employee’s qualifying event, the employee is eligible for ARPA Subsidized COBRA even if the employer is no longer subject to COBRA.
Example: An employer is covered by COBRA for the 2020 calendar year but is an exempt small employer for the 2021 calendar year. An individual has a qualifying event that is an involuntary termination of employment in November of 2020. Because the qualified beneficiary’s qualifying event occurred during the 2020 calendar year when the employer was covered by COBRA, the employer is required to provide the individual the opportunity to elect ARPA Subsidized COBRA, using the AEI’s full federal COBRA period to determine its obligations.
Extended Election Rights Are Available for Mini-COBRA
ARPA Subsidized COBRA rules apply not only to federal COBRA, but also to state mini-COBRA laws. However, the new guidance clarifies that only employers subject to federal COBRA must offer AEIs a second “extended election period” (e.g., “second bite of the apple”) to enroll in ARPA Subsidized COBRA coverage. Employers subject to a state’s mini-COBRA laws are not required to offer this extended election period, unless the applicable state’s mini-COBRA law itself provides for a similar extended election period. Thus, unless such a state mini-COBRA law mandates the extended election period, small employers are only required to subsidize COBRA for qualified beneficiaries who have enrolled in the mini-COBRA coverage pursuant to the normal election rules.
Unanswered Questions Remain
Even with the issuance of this latest guidance, several questions remain unanswered:
- Who Has the Obligation If There Was a Purchase or Sale of a Business? It is unclear how the special enrollment window applies to businesses that have been bought or sold within the applicable COBRA look-back period. Employers involved in such sales or acquisitions should consult with their legal counsel to determine which entity is responsible for COBRA obligations, whether under the default rules set forth in the COBRA regulations or pursuant to any promises made under the applicable purchase or sale agreement.
- What If the Employer Changed Insurers? If the employer has changed insurers within the COBRA look-back period, the employer may encounter problems getting its current insurer to honor these obligations, especially if the employer is now below the federal COBRA threshold. If faced with insurer pushback on covering AEIs, affected employers should consult with legal counsel before deciding how to handle.
Given the fast-approaching notice deadline, we are doubtful that any further guidance will be issued to clarify these issues.
What Should Employers and Plan Administrators Do Now?
- If you offer dental, vision, or EAP coverage, provide the required notices to all AEIs by May 31, 2021. Model notices can be found on the DOL’s website here.
- Make sure you have identified any AEIs who were entitled to 29 or 36 months of coverage and provide the required notices by May 31, 2021.
- Set up a procedure to timely distribute the required ARPA expiration notices at least 15 and not more than 45 days prior to the date that ARPA Subsidized COBRA is scheduled to end (this should already be in place, since some AEIs may have become ineligible at the end of April or May).
- If insured, confirm with your insurer how you must report and pay premiums on behalf of AEIs.
- Make sure that you are tracking the applicable premiums for ARPA Subsidized COBRA and coordinate with your payroll department or payroll provider to timely claim tax credits (while tax credits may be claimed after the close of a calendar quarter, this approach may result in delayed receipt of the funds).
- Stay tuned for additional guidance.