The Department of Labor (“DOL”) has issued model notices regarding COBRA premium assistance (a/k/a COBRA subsidies). As we wrote about here, as part of the American Rescue Plan Act of 2021 (the “Act”), Congress sought to enable qualifying individuals – known under the law as “Assistance Eligible Individuals” or “AEIs” – to continue their healthcare coverage by subsidizing their COBRA premium payments for the period between April 1 and September 30, 2021. We discuss these notice requirements and related issues below.
The COBRA Subsidy Notices
As a refresher, employers must provide various notices under the new law, including notices:
- For Qualifying Events Occurring After April 1, 2021. Employers must provide a notice to any AEI who has a qualifying event (e.g., involuntary termination or reduction of hours) between April 1 and September 30, 2021, which, among other things, advises the AEI of the CORBA subsidy’s availability and whether the employer permits the AEI to enroll in other, less expensive coverage. Employers may provide this notice with the regular COBRA notice the AEI would receive after a qualifying event or they may provide it separately. In fact, the model notice takes care of both obligations by incorporating the subsidy notification language into an updated general notice.
- For Qualifying Events Occurring Before April 1, 2021. Employers must provide this so-called “second chance” notice to any AEI who experienced a COBRA qualifying event after October 1, 2019 but before April 1, 2021 (and thus who is still within his or her 18-month COBRA period) and who is currently enrolled in COBRA Coverage, or who declined to elect COBRA coverage, advising the AEI that he or she has the opportunity to enroll in COBRA coverage notwithstanding the AEI’s earlier decision against a coverage election. Employers must provide this notice no later than May 31, 2021.
- Before Subsidies Expire. Employers must also provide a notice to the AEI identifying the date on which the subsidy will expire. Employers must provide this notice between 15-45 days before the expiration date. Employers do not, however, have to provide this notice where the subsidy ended because the AEI became covered under another group health plan or Medicare.
More specifically, the model notices prescribed by the DOL include the following:
- Model General Notice and COBRA Continuation Coverage Election Notice
- This model form is the standard COBRA continuation coverage election notice that has been modified to take account of the Act’s premium subsidies. It must be provided to qualified beneficiaries whose COBRA qualifying event occurs on or after April 1, 2021.
- Model Notice in Connection with Extended Election Period
- This model form should be provided to AEIs who are currently enrolled in COBRA continuation coverage due to a reduction in hours or involuntary termination, as well as those AEIs who would otherwise have qualified if they had elected and/or maintained COBRA continuation coverage. This notice must be provided by May 31, 2021 to AEIs who had a qualifying event before April 1, 2021.
- Model Alternative Notice
- This model form is used to elect State-law mini-COBRA coverage for which premium assistance is provided by the Act.
- Summary of COBRA Premium Assistance Provisions under the American Rescue Plan Act of 2021 (including a “Request for Treatment as an Assistance Eligible Individual” Form)
- The “summary” portion of this notice must be included with all three notices listed above: (i) the General Notice; (ii) the Notice in Connection with Extended Election Period; and (iii) the Model Alternative Notice. The “request” portion enables individuals to request premium assistance or to discontinue it.
Next Steps and Takeaways
- With the model notices now available, employers are well-advised to begin the notification process for impacted employees, including by contacting their COBRA vendors and administrators to ensure that each AEI receives the appropriate notice. In particular, employers should not overlook those AEIs eligible for a “second chance” notice, which must be sent to them no later May 31, 2021.
- AEIs have 60 days from the date they receive the notice to enroll in COBRA coverage – not from the date of the notice itself.
- Where an employer provides the AEI with the option to elect to enroll in other, less expensive coverage, the AEIs have 90 days from the date they receive the notice to enroll in the different coverage.
- From a mechanics standpoint, AEIs do not pay premiums during the assistance period and instead the employer or plan to whom COBRA premiums are payable are entitled to a tax credit for the amount of the subsidy. Thus, employers should not send any reimbursements or payments to the AEI directly. However, where an AEI may have paid a COBRA premium during the assistance period, employers should work with the AEI to arrange for a credit or refund.
- Employers should also pay close attention to how these subsidies may impact any furlough, severance program or individual severance packages that provide for COBRA coverage reimbursement or payments as consideration.
- The FAQs issued by the DOL do not provide guidance on what comprises an “involuntary termination” but it does set forth certain examples of qualifying events such as a reduction of hours, including “reduced hours due to change in a business’s hours of operations, a change from full-time to part-time status, taking of a temporary leave of absence, or an individual’s participation in a lawful labor strike, as long as the individual remains an employee at the time that hours are reduced.” Additional guidance on this issue would be welcomed.
- The FAQs also address the interaction of the rules the IRS previously issued and the DOL’s extension of deadlines for COBRA elections during the COVID-19 National Emergency along with the Act’s rules governing premium assistance. According to the FAQs, this extended deadline relief does not apply to the notice or election periods for purposes of the Act’s COBRA premium assistance. Thus, there are now two overlapping COBRA regimes – one for standard COBRA elections and the other relating to eligibility for premium assistance. Additional guidance would also be welcome to understand how to coordinate these rules.
- Employers should be aware that a failure to comply with notice requirements may subject them to an excise tax of $100 per qualified beneficiary or up to $200 per family for each day the plan or employer is in violation of COBRA rules.