The American Rescue Plan Act of 2021, signed by President Biden on March 11, 2021, (“ARPA”) includes generous provisions granting eligible individuals who have lost their jobs or had a reduction in hours (and their family members) the right to continue their employer group health plan coverage at no cost during the period from April 1, 2021 to September 30, 2021 (“ARPA Subsidized COBRA”). Click here to see our prior alert outlining these new rights. The ARPA Subsidized COBRA provisions went into effect on April 1, meaning employers and plan administrators should have already taken steps to ensure compliance.
To assist in these efforts, the Department of Labor (“DOL”) has released guidance in the form of “FAQs About COBRA Premium Assistance Under the American Rescue Act of 2021” (“FAQs”) and an EBSA Notice titled “Notice of the Availability of the Model Health Care Continuation Coverage Notices
Required by the American Rescue Plan Act of 2021” (“Notice”). The FAQs and Notice include model notices and summaries to be provided to eligible individuals. While this latest guidance does not answer every question facing employers and plan administrators, it does provide needed insight in a few key areas that we have highlighted below.
Small Plans Covered By State Mini-COBRA Laws Must Comply
In addition to group health plans sponsored by private employers or unions subject to COBRA continuation coverage requirements and plans sponsored by state or local governments subject to the continuation provisions under the Public Health Service Act, the FAQs clarify that ARPA Subsidized COBRA obligations also extend to group health plans that are too small to be subject to Federal COBRA, but would be required to offer continuation coverage under state laws that are comparable to the Federal COBRA provisions (known as “mini-COBRA”).
Subsidy Rights End Upon Eligibility (not Enrollment) in Other Coverage
As discussed in our last alert, there are two types of “assistance eligible individuals” (“Assistance Eligible Individuals”) – (a) individuals who first become eligible for COBRA between April 1, 2021 and September 30, 2021 due to a reduction in hours or an involuntary termination of employment, and (b) individuals previously eligible for COBRA due to a reduction in hours or an involuntary termination occurring before April 1, 2021, but who did not elect COBRA continuation coverage when first offered or who initially elected COBRA but later discontinued coverage (individuals in this second category have a 60 day “special enrollment window” after receipt of the required ARPA Subsidized COBRA notice).
The FAQs clarify that, for either type of Assistance Eligible Individual, eligibility for ARPA Subsidized COBRA ends as of the first date the individual becomes eligible for Medicare or coverage in a group health plan subject to the ARPA Subsidized COBRA provisions. This includes eligibility for coverage through a new employer or a spouse’s plan (not including qualified small employer health reimbursement arrangements (QSEHRAs), health FSAs offered through a Code Section 125 cafeteria plan, or plans comprised entirely of excepted benefits (e.g., dental or vision)). Note that the DOL’s position is that mere eligibility for alternative coverage – not actual enrollment in such coverage – is disqualifying for purposes of ARPA Subsidized COBRA.
Thus, those administering the ARPA Subsidized COBRA should consider requiring that individuals confirm that no other group health plan coverage is available to them.
COVID Deadline Extensions Do NOT Apply to ARPA Subsidized COBRA
Many qualified beneficiaries were given extended election rights pursuant to EBSA Disaster Relief Notice 2021-01 (see our prior alert here) that could allow them up until as late as one year after their original COBRA deadline to make a COBRA election and to pay the corresponding premiums.
The FAQs clarify that the extended deadline relief provided in EBSA Disaster Relief Notice 2021-01 does not apply to the 60-day notice or election periods related to ARPA Subsidized COBRA coverage. This means that Assistance Eligible Individuals will not be allowed more than the 60-day period following receipt of the applicable ARPA Subsidized COBRA notice in which to make an election to enroll in ARPA Subsidized COBRA. This does not, however, affect the individual’s preexisting right to elect non-subsidized COBRA continuation coverage under the extended time frames provided under EBSA Disaster Relief Notice 2021-01.
Model Notices Now Available
The DOL has provided the following model COBRA notices to assist plans and issuers in notifying Assistance Eligible Individuals regarding their rights to ARPA Subsidized COBRA:
- General notice and election form – required to be sent to Assistance Eligible Individuals enrolled in group health plans subject to Federal COBRA who have a qualifying event that is a reduction in hours or an involuntary termination between April 1, 2021 and September 30, 2021. Assistance Eligible Individuals have 60 days from receipt of the notice in which to elect ARPA Subsidized COBRA.
- Alternative notice and election form – required to be sent to Assistance Eligible Individuals enrolled in group health plans subject to state mini-COBRA laws (but not Federal COBRA) who have a qualifying event that is a reduction in hours or an involuntary termination between April 1, 2021 and September 30, 2021. Assistance Eligible Individuals have 60 days from receipt of the notice in which to elect ARPA Subsidized COBRA.
- Notice of the extended COBRA election period – required to be sent to Assistance Eligible Individuals who had a qualifying event before April 1, 2021. This notice must be provided to applicable Assistance Eligible Individuals within 60 days following April 1, 2021 (i.e., May 31, 2021), who then have 60 days in which to elect ARPA Subsidized COBRA Note, however, that this extended election period does not extend the period of COBRA continuation coverage beyond the original maximum period (for those subject to COBRA, the maximum period generally expires 18 months from the reduction in hours or involuntary termination).
- Notice of expiration of premium assistance – required to be sent to Assistance Eligible Individuals receiving ARPA Subsidized COBRA at least 15 and not more than 45 days prior to the date that their COBRA subsidy expires. The notice must include the date of expiration and state that the Assistance Eligible Individual may be eligible for non-subsidized coverage through COBRA or coverage under a group health plan.
In addition to these model notices, the DOL issued a Summary of ARP requirements that should be included with the above notices.
Unanswered Questions Remain
ARPA directs the Secretary of Treasury to issue additional guidance on reporting tax credits, credits claimed by multiemployer plans, procedures to claim advance credits, and the possibility that third party payors (such as PEOs, CPEOs, and 3504 agents) may be able to claim the credits.
Even with the issuance of the FAQs and Notice, several questions remain unanswered:
- Do Assistance Eligible Individuals Include Individuals with 29-Month or 36-Month COBRA Triggers? It is unclear whether Assistance Eligible Individuals include those who became entitled to COBRA coverage as a result of an involuntary termination of employment, but for a period of longer than 18 months either due to one of the special extension rules or a second qualifying event. Without further guidance and based on a strict reading of the statute, prudent plan sponsors and employers need to discuss with their legal counsel whether it is better to err on the side of including these individuals in their special enrollment window.
- 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? It is unclear which insurer must offer ARPA Subsidized COBRA in the event that the employer has changed insurers within the COBRA look-back period. We suspect that the current insurer will have this obligation, but affected employers should consult with legal counsel before deciding how to handle.
- What If the Employer is No Longer Subject to COBRA? It is unclear what obligations apply to an employer who used to be subject to COBRA, but decreased its employee count last year so that it is now below the 20-employee threshold for COBRA. Is this employer required to offer ARPA Subsidized COBRA to its former employees who still have COBRA rights? The answer is unclear.
- Is ARPA Subsidized COBRA Limited to Medical Only? It is unclear whether ARPA Subsidized COBRA is required to be provided to Assistance Eligible Individuals with respect to dental, vision, employee assistance or other group health plans subject to COBRA. While the FAQs explain that eligibility for coverage in these types of plans does not disqualify an Assistance Eligible Individual from ARPA Subsidized COBRA, the guidance stops short of explicitly excluding these plans from ARPA Subsidized COBRA. Employers sponsoring any of these plans should consult with their legal counsel as to whether or not to offer ARPA Subsidized COBRA.
As many of these questions remain outstanding following the issuance of the FAQs, it is our hope that additional guidance will be forthcoming.
What Should Employers and Plan Administrators Do Now?
- If you have a third-party COBRA administrator, review the model ARPA COBRA notices provided by the DOL and make sure your COBRA administrators are providing the correct versions in a timely manner.
- If you serve as COBRA administrator, continue work with your legal counsel and other advisors (a) to prepare and issue the required ARPA COBRA notices; (b) to identify your group of potential Assistance Eligible Individuals to whom notices must be provided; and (c) to set up a procedure to distribute the required expiration notices.
- Gather data regarding your Assistance Eligible Individuals who may be entitled to the special enrollment window.
- If insured, confirm with your insurer how you must report and pay premiums on behalf of Assistance Eligible Individuals.
- Make sure that you are tracking the applicable premiums for ARPA Subsidized COBRA so that, if available to you, you will have the information that you will need to claim tax credits.
- Stay tuned for additional guidance.