As part of the recently enacted American Rescue Plan Act of 2021 (“ARP”), certain COBRA eligible individuals are eligible for temporary premium subsidies April 1 to September 30, 2021. These subsidies will cover 100 percent of the premium for certain individuals who qualify for COBRA coverage. It will be up to the former employer to pay the COBRA premium for subsidy-eligible individuals; employers can then take a credit against their Medicare payroll taxes to cover the cost of the subsidy.
Former employees who qualify for the temporary subsidy are called Assistance Eligible Individuals and include:
- Individuals who become eligible for COBRA coverage due to an involuntary termination of employment or a reduction in hours (it does not have to be for reasons related to COVID-19) between April 1 and September 30;
- Individuals who are currently enrolled in COBRA due to an involuntary termination or reduction in hours and will continue to be eligible for COBRA as of April 1; and
- Individuals who were previously eligible for COBRA due to an involuntary termination or reduction in hours, but either (1) did not elect COBRA coverage or (2) elected COBRA coverage and then dropped it, but who would have still been eligible for COBRA after April 1.
Individuals who voluntarily leave employment or become eligible for COBRA for any other reason are not Assistance Eligible Individuals and are not eligible for the subsidy. Furthermore, if an individual becomes Medicare eligible or becomes eligible for other group health plan coverage between April 1 and September 30, the individual is no longer eligible for the subsidy. If an individual becomes eligible for other health care coverage, the individual is obligated to notify the former employer of the eligibility change or face a monetary penalty.
The ARP also imposes new COBRA notice requirements to ensure that Assistance Eligible Individuals understand their options and any obligations:
- COBRA notices for Assistance Eligible Individuals who become eligible for COBRA between April 1 and September 30 must include information about the premium assistance available under the ARP and any conditions, the obligation to report a change in eligibility status, and the penalty associated with the failure to report a change in eligibility. A model notice will be available by April 10.
- New notices must be provided to Assistance Eligible Individuals whose qualifying event occurred prior to April 1 and who now have a second opportunity to elect COBRA and obtain the subsidy. This includes individuals who either (1) did not elect COBRA coverage or (2) elected COBRA coverage and then dropped it. This notice must be provided by May 31 and the DOL is to prepare a model notice by that date.
- A notice must be provided to Assistance Eligible Individuals about the expiration of the premium assistance period, though this notice is not required where an AEI’s eligibility for coverage will expire prior to September 30. A model notice will be available by April 25.
Failure to follow the new notice requirements will be treated as a failure to follow COBRA’s notice requirements.
Employers will need to:
- Work on updating their COBRA notices to comply with the ARP as the notices are updated by the DOL;
- Determine who needs to be sent an updated COBRA notice by evaluating whether individuals who experienced an involuntary termination from employment or reduction in hours between November 2019 and the present are Assistance Eligible Individuals;
- Be on the lookout for the model notices and additional guidance on this section of the ARP, including guidance on how to claim the tax credit and the types of benefit plans that are covered.