As previously reported in EmployNews, the American Rescue Plan Act provides “assistance eligible individuals” with the option to receive fully-subsidized COBRA coverage from April 1, 2021 through September 30, 2021. Assistance eligible individuals include employees who have experienced an involuntary termination or reduction of hours.
Last week, the U.S. Department of Labor issued model notices and FAQ guidance regarding the new subsidies. Its general notice can be used for qualifying events occurring from April 1, 2021 through September 30, 2021. The extended election notice should be sent to all assistance eligible individuals who experienced a qualifying event after October 1, 2019, even if they are currently enrolled in COBRA, previously dropped COBRA coverage, or previously declined COBRA coverage. Finally the notice of expiration should be sent to individuals 15 to 45 days before their premium assistance expires.
The FAQs are largely geared towards workers but also include important information for employers. Assistance eligible individuals include those experiencing involuntary termination (except for gross misconduct) or a reduction of hours “such as reduced hours due to change in a business’s hours of operations, a change from full-time to part-time status, taking 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 the hours are reduced.” Notably, individuals appear to be eligible for assistance even if they voluntarily reduce their hours. Additionally, assistance eligible individuals with qualifying events before April 1, 2021 may elect either retroactive coverage starting as of the qualifying event or coverage beginning on April 1, 2021.
The FAQs also leave unanswered certain key questions. Employers must still await guidance from the IRS explaining how to take advantage of the Medicare tax credit meant to reimburse companies for COBRA premiums paid under the American Rescue Plan. Also, the FAQs provide little clarity on what constitutes an involuntary termination. Guidance relating to a similar COBRA subsidy enacted in 2009 suggests that involuntary termination could mean “(a) severance from employment; (b) due to the independent exercise of the unilateral authority of the employer to terminate the employment, other than due to the employee’s implicit or explicit request; (c) where the employee was willing and able to continue performing services.” However, DOL and IRS have not provided any indication whether they will adopt this same approach to the new subsidies.