The Department of Labor (“DOL”) issued new guidance earlier this month on the temporary COBRA subsidies provided by the recently enacted American Rescue Plan Act (the “ARP”), which employers may find useful in administering their COBRA coverage programs.
As many of you may be aware, COBRA normally gives individuals who lose group health plan coverage as a result of various qualifying events the right to elect COBRA continuation coverage for a limited period of time (while paying any associated premiums themselves). The ARP supplemented those rights for certain individuals, each referred to as an “Assistance Eligible Individual” or “AEI,” by removing their obligation to pay any coverage continuation premiums under COBRA, or comparable state law, during periods of coverage between April 1, 2021 and September 30, 2021. Employers or plans must reimburse any COBRA coverage premiums inadvertently paid by AEIs during that subsidy period, but they are also entitled to tax credits equal to the amount of AEI coverage premiums reimbursed or borne.
Under the ARP, AEIs include any individuals who, due to an involuntary termination or reduction in hours, (i) become eligible for and elect to maintain COBRA coverage during the subsidy period or (ii) became eligible for COBRA coverage before the subsidy period and are still within their maximum coverage period (generally 18 months from the qualifying event), even if they already refused COBRA coverage before the subsidy was available. AEIs still must elect coverage continuation to be eligible for the subsidy, and they do not include anyone who resigned, was terminated for gross misconduct, or who has become eligible for health coverage from another source (e.g., a new employer).
To comply with the new law, employers must provide all AEIs with ARP subsidy notices informing the individuals of their rights under the ARP (the DOL has provided model notices here). Employers should keep in mind that the ARP notices must be provided to individuals in group (ii) above no later than May 31, 2021. Employers are also required to inform AEIs if their premium assistance coverage period is close to expiring at least 15 to 45 days before the actual expiration date.
It’s important to adhere to these temporary coverage requirements, as penalties for noncompliance can be significant. An excise tax is imposed on employers or multiemployer plans that fail to comply with COBRA continuation coverage requirements in an amount as high as $100 per qualified beneficiary (limited to $200 per family) for each day that the employer or plan is in violation of the COBRA rules.