Q: Does the American Rescue Plan Act of 2021 (ARPA) impact group health plans?
A: Yes, ARPA makes temporary but significant changes to Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) coverage. These changes, at a high level, include:
- A 100% COBRA subsidy for the period of April 1 through Sept. 30, 2021.
- A second “bite at the apple” for COBRA qualified beneficiaries who previously did not elect COBRA or who previously elected COBRA and dropped the coverage.
- The opportunity to offer COBRA covered individuals the chance to change their elected option to a cheaper option.
Q: Who qualifies for the 100% subsidy?
A: Only “assistance eligible individuals” (AEIs) qualify for a subsidy. An AEI is someone who, in the time period between April 1 and Sept. 30, 2021, is eligible for COBRA coverage due to an involuntary termination (other than for gross misconduct) or a reduction in hours and elects such coverage. An AEI no longer is eligible for a subsidy upon the earliest of his or her becoming eligible for other group health plan coverage (that is not an excepted benefit) or Medicare or the expiration of his or her maximum COBRA period.
Q: If someone could have had a COBRA election in effect on April 1, 2021, due to an involuntary termination or a reduction in hours but did not elect COBRA or elected and then dropped it, is he or she an AEI?
A: Such a person would not be an AEI unless he or she took advantage of ARPA’s extended election period. Under ARPA, a group health plan sponsor must give such individuals another opportunity to elect COBRA coverage. If an individual does this, he or she then will be an AEI and eligible for the subsidy. Such individuals may elect COBRA starting on April 1, 2021 until 60 days following the sponsor’s providing notice of the extended election opportunity. If elected, the coverage will be retroactive to April 1, 2021, at no cost. ARPA does not go into details on the mechanics of the extended election period, but presumably an individual who initially elected COBRA for dental coverage but declined medical coverage that would, if elected, be in effect on April 1, 2021, could use this extended election opportunity to elect COBRA medical coverage. We will be watching for more guidance on this and other scenarios related to the extended election period.
Q: How long will COBRA last for someone who elects during the extended election period? Does that person get a new period of 18 months of COBRA?
A: No, a person electing COBRA through the extended election period may maintain the coverage only until the expiration of the COBRA coverage period he or she would have had if he or she had elected COBRA when first eligible. For example, an individual first eligible for COBRA on Jan. 1, 2021, who did not elect COBRA effective until April 1, 2021, will be eligible for COBRA only through June 30, 2022.
Q: Does a sponsor receive anything for providing the 100% COBRA subsidy between April 1 and Sept. 30, 2021?
A: Yes, sponsors will receive a refundable Medicare payroll tax credit for providing the subsidy. The credit will be an amount equivalent to the aggregate amount of the provided subsidies. In certain cases, this subsidy may be taken in advance. Plan administrators and sponsors’ tax departments should coordinate now to establish a plan for ascertaining and tracking the amount of subsidies provided between April 1 and Sept. 30, 2021.
Q: Do sponsors have to provide COBRA participants with the chance to trade down to a cheaper option?
A: No, this is an option and not a requirement. Any plan sponsor that decides to provide this option must put the following limitations on the option:
- Participants may only trade down to an equally or less-expensive option – a more expensive option is not available.
- The equally or less-expensive option must be available to similarly situated active employees.
- The equally or less-expensive option cannot be a health flexible spending account, a qualified small-employer health reimbursement arrangement or an excepted benefit.
Q: With all these changes to COBRA under ARPA, do sponsors have any notice requirements?
A: YES! There are several new notice obligations:
- Initial Election Notices: COBRA election notices for COBRA qualified beneficiaries who are eligible between April 1 and Sept. 30, 2021, must include information related to premium subsidies and, if the sponsor makes it available, the option to trade down to a less-expensive benefit option. In addition, the notice must include several option content elements, including the forms required for an AEI to establish eligibility for the premium subsidy, a description of the extended election period and a description of the COBRA participant’s obligation to notify the plan when he or she no longer is eligible for the premium subsidy.
- Extended Election Notices: Individuals who are eligible for the extended election period must be provided a notice of the opportunity by May 31, 2021.
- Subsidy Termination Notice: Sponsors must provide notice to each AEI no more than 45 days but no less than 15 days before his or her subsidy termination date. This notice must prominently identify the date of subsidy termination and state that coverage may be available through unsubsidized COBRA or group health plan coverage. No such notice is required if an AEI loses subsidy eligibility because he or she becomes eligible for other group health plan coverage or Medicare.
Q: Is there any help on the way?
A: ARPA requires the Departments of Treasury, Labor and Health and Human Services to issue regulations and guidance, including model notices, to support group health plan sponsors in their provision of these benefit opportunities.