The American Rescue Plan Act (ARPA), which was passed in March, included a provision that provided certain individuals free COBRA coverage between April 1, 2021 through September 30, 2021. The coverage cost is subsidized through a tax credit to employers to offset the cost of COBRA premiums. Last week, the United States Department of Labor (US DOL), released updated guidance, Frequently Asked Questions (FAQs), and model notices for employers to use to ensure compliance with the ARPA.
Traditionally, COBRA provides covered individuals to continue coverage under an employer sponsored health plan for a period of eighteen (18) months following a qualifying event that causes them to lose coverage, such as termination of employment. Under COBRA, the employee must pay the full health insurance premium cost, which can include a 2% administrative fee. The ARPA picks up 100% of the cost of the premium for “assistance eligible individuals” (AEI) by providing employers with an offsetting tax credit. Assistance eligible individuals are those who were COBRA eligible individuals who are enrolled in group coverage under COBRA or for those who become COBRA eligible between April 1, 2021 through September 30, 2021. However, it is important to note that individuals who voluntarily terminate their employment or are eligible under another group health plan, such as a spouse’s group health plan, are not eligible for the subsidized premium coverage or the special enrollment period.
Under the ARPA, the COBRA premium subsidy provides that the federal government will pay 100% of COBRA insurance premiums for eligible employees who lost their coverage and for their covered relatives through September 2021. Employers will pay the COBRA premium on behalf of the assistance eligible individuals and will get a corresponding payroll tax credit against employers’ quarterly tax obligations. All employer sponsored health plans subject to federal COBRA are eligible for the credit against their Medicare FICA payroll taxes. Additionally, employers must provide the COBRA premium subsidy to assistance eligible individuals who have elected COBRA coverage, starting April 1st. If assistance eligible individuals have already paid, or inadvertently pay premiums during the period from April 1 through Sept. 30, 2021, they must be issued a refund within 60 days.
The ARPA does not require employers to provide a longer period of coverage than is currently required under COBRA. When an individual reaches the end of their COBRA eligibility period, they right to coverage ends, whether subsidized or not.
What must employers do now?
If your organization outsources your COBRA administration, it is likely that the vendor is taking the appropriate steps to ensure your organization is compliant. Employers are encouraged to contact their COBRA Administration vendor to ensure that they are taking the necessary actions. If your organization handles COBRA administration internally, be sure that you take the following steps:
- Employers must provide a Model ARP General Notice & COBRA Continuation Coverage Election Notice to all assistance eligible individuals no later than May 30, 2021.
- Employers must provide assistance eligible individuals with a Model COBRA Continuation Coverage Notice in Connection with Extended Election Periods Notice which provides assistance eligible individuals with another opportunity, or a “special enrollment period”, to elect coverage. This includes those who previously were offered, and declined COBRA coverage, as well as those who had elected coverage but dropped coverage prior to the expiration of the appropriate COBRA coverage period. This includes any individual who lost coverage due to a COBRA qualifying event on or after October 1, 2019.
- The notice must be furnished to all employees who are currently continuing their health insurance coverage under COBRA with an updated COBRA Notice.
- The ARP also provides that plans must provide individuals with a Notice of Expiration of Periods of Premium Assistance explaining when premium assistance will expire. This notice must be furnished to individuals 15-45 days prior to expiration of premium assistance.
- Employers may not charge assistance eligible individuals the 2% administrative fee during the subsidized premium coverage period as they typically could prior to the ARPA.
It is important that employers furnish the required notices no later than May 30, 2021. If you have questions about the subsidized premiums coverage under the ARPA or have other human resources or employment law compliance questions, be sure to contact the AAA for assistance.