The Consolidated Omnibus Budget Reconciliation Act (“COBRA”) requires group health plans to allow qualified beneficiaries who would otherwise lose coverage due to certain events to elect to continue coverage under the plans by paying a monthly premium of up to 102 percent of the plan’s cost of providing the coverage. Qualified beneficiaries include employees and former employees and their spouses and dependents who were covered by the plan at the time of loss of coverage.
COBRA Premium Assistance
The American Rescue Plan Act of 2021 (“ARPA”) requires employers to subsidize the cost of COBRA continuation coverage, or such costs under state mini-COBRA laws where COBRA does not apply—with an assist from Uncle Sam (as described below). This subsidy must be provided for qualified beneficiaries who become eligible for and elect COBRA (or a state’s mini-COBRA) benefits as a result of an employee’s loss of health plan coverage due to an involuntary termination of employment (other than for gross misconduct) or a reduction of hours. ARPA refers to people who satisfy these requirements as “Assistance Eligible Individuals.”
The COBRA and mini-COBRA premium subsidy is available only from April 1, 2021, through September 30, 2021. However, the subsidy also applies to Assistance Eligible Individuals who became eligible for COBRA or mini-COBRA prior to April 1, 2021, but whose COBRA coverage period would have extended to overlap with the period from April 1 through September 30, 2021. (See below for more insight.)
An Assistance Eligible Individual loses the subsidy if they become eligible for coverage under another group health plan, such as a plan sponsored by a new employer or a spouse’s employer), or becomes eligible for Medicare. Individuals receiving this COBRA subsidy must notify their plans if they become eligible for coverage under another group health plan or become eligible for Medicare. Failing to provide this notice can result in the individual having to pay a tax penalty to the IRS.
If a group health plan permits qualified beneficiaries to enroll in coverage that is different than they had at the time they became eligible for COBRA, subject to certain limitations, an Assistance Eligible Individual does not cease to be eligible for premium assistance if they switch to a different coverage option.
Assistance Eligible Individuals request the subsidy by completing an application provided by the employer or the health plan administrator. The link to the Department of Labor model notices (below) also links to the subsidy application form.
Fear Not—Employers Get to Recoup the Cost of Premium Assistance
Employers are able to recoup the COBRA subsidy by way of a credit against the 1.45 percent Medicare Hospital Insurance Tax that employers are required to pay on wages. The credit is unavailable for any wages that are taken into account in determining credits under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) or the Families First Coronavirus Response Act.
Additional COBRA Election Opportunity
Under ARPA, qualified beneficiaries who became eligible for COBRA prior to April 1, 2021, but who did not elect COBRA coverage when it was first offered or who are no longer enrolled in COBRA (for example, by failing to pay COBRA premiums), are being provided a special opportunity to elect COBRA benefits for a period of 60 days after they receive notice of this new subsidy. (See below for a description of the notice of the election.) Importantly, although making this election will allow a qualified beneficiary to take advantage of the subsidy, it does not extend the maximum COBRA coverage period, which generally lasts 18 months. This additional election period is not available for state mini-COBRA coverages.
Notices—Employers and Health Plan Administrators Need to Act Now
ARPA requires plans to provide three notices to qualified beneficiaries:
- All qualified beneficiaries who become eligible for COBRA between April 1, 2021, and September 30, 2021, due to an employee’s involuntary termination of employment or reduction of hours must receive a notice that includes: (i) a description of the right to receive the premium subsidy and the conditions that must be satisfied to qualify for it; (ii) a form for requesting the subsidy; (iii) a description of the requirement that the plan be notified if the individual becomes eligible for other group health plan or Medicare coverage; and (iv) if applicable, a description of the right to switch to a different coverage option. This notice is in addition to the COBRA notice that all qualified beneficiaries are required to receive when they lose group health plan coverage and should be provided within the time period for the COBRA notice.
- No later than May 31, 2021, group health plans need to provide a notice to all qualified beneficiaries who lost plan coverage prior to April 1, 2021, because of an involuntary termination of employment or reduction of hours. This notice must contain the same information that is provided to qualified beneficiaries who become eligible for COBRA between April 1, 2021, and September 30, 2021 (described above). In addition, qualified beneficiaries who lost plan coverage prior to April 1, 2021, must be notified of the special opportunity to elect COBRA coverage within 60 days after the date of the notice, if they do not currently have a COBRA election in place. This notice does not need to be provided to qualified beneficiaries whose maximum period of COBRA coverage would have lapsed by April 1, 2021—generally, those who became eligible for COBRA coverage prior to October 1, 2019.
- Assistance Eligible Individuals must receive a notice that their premium subsidy is expiring. This notice must be provided 15 to 45 days before their premium subsidy ends. In order to avoid violating this requirement, employers and health plan administrators will need to quickly identify individuals whose COBRA eligibility occurred prior to April 1, 2021. In some instances, this notice period may overlap with the 60-day additional COBRA election period.
If you click here, you will link to the model notices and FAQs discussing ARPA’s premium subsidy provisions recently posted by the Department of Labor.