In all of the public commentary about President Biden’s stimulus package, one provision of particular concern to employers seemingly flew under the radar: for the next six months, COBRA coverage is free for eligible ex-employees.
Under the $1.9 trillion American Rescue Plan Act of 2021 (“ARPA”), signed into law by President Biden on March 11, 2021, employers will be responsible for paying the entire COBRA premium, but can recoup the payments in the form of refundable tax credits. This COBRA subsidy runs from April 1 to September 30, 2021.
While the Department of Labor (“DOL”) will define the exact contours of the employers’ responsibility in the coming weeks, it is already evident that employers need to identify former employees who are eligible for the enhanced COBRA coverage and provide them with notice of the benefit. Breathe easy: the deadline is May 31, 2021. This update summarizes this latest change, and the steps employers can take now to prepare.
The COBRA Subsidy
Most employers are required to provide COBRA coverage, which allows former employees to remain on employer-sponsored health plans for up to eighteen months after separation. Usually, the employee must pay the entire premium, which includes any portion that had previously been paid by the employer, making COBRA continuation coverage prohibitively expensive for many former employees. ARPA alleviates this financial burden by subsidizing COBRA costs for six months.
The COBRA subsidy is applicable to “Assistance Eligible Individuals.” These are employees who are involuntarily terminated from the job for reasons other than gross misconduct, or whose hours were reduced to the point that they lost coverage under the employer-sponsored plan. Employees who leave their jobs voluntarily are not eligible for the COBRA subsidy.
Significantly, ARPA allows former employees to receive the subsidy even if they initially waived or discontinued COBRA coverage. ARPA provides these former employees with a “Special Enrollment Period” to enroll in COBRA, beginning on April 1, 2021 and ending sixty days after the individual receives notice that the subsidy is available. This Special Enrollment Period, however, is only available to former employees who have time remaining on their 18 months of COBRA coverage.
The COBRA continuation period will not be extended because of the subsidy – coverage will end at the same time it would have if COBRA had been elected when the individual first became eligible for coverage. For instance, if an Assistance Eligible Individual became eligible for COBRA coverage on December 30, 2019, the individual would be entitled to coverage for eighteen months, until June 30, 2021. Because of the subsidy, if the individual had initially elected COBRA and been paying the premiums, he or she would not have to pay premiums for the period from April 1 through June 30. Similarly, an individual who initially became eligible for COBRA on December 30, 2019, but did not elect COBRA, or began but stopped paying the premiums, would also be eligible for the subsidy from April 1 to June 30, so long as the individual enrolled within 60 days after being notified that the subsidy exists. An Assistance Eligible Individual who became eligible for COBRA on March 30, 2021 would be entitled to COBRA for eighteen months, until September 30, 2022. The premiums for the entire six months of the subsidy period (April 1 to September 30) are paid by the employer for that individual.
Loss of Subsidy
An Assistance Eligible Employee who becomes eligible for another group health plan or Medicare will become ineligible for the subsidy. The individual is required to notify the group health plan of eligibility for alternative coverage, even if the former employee does not enroll in the coverage. The subsidy also ends when the Assistance Eligible Individual’s entitlement to COBRA ends.
Employers must begin now to identify all Assistance Eligible Individuals. In addition to keeping track of individuals who may qualify for the subsidy because of a qualifying termination or reduction of hours during the subsidy period, employers should look backwards to identify all Assistance Eligible Employees who will be enrolled in COBRA during the subsidy period or would have been had COBRA been elected. Employers will also be required to notify eligible employees about the existence of the subsidy period and provide enrollment paperwork to Assistance Eligible Employees who are not enrolled in COBRA.
COBRA notices must be modified to include the following information, which can be included with current COBRA notices or in a stand-alone document:
- the forms necessary for establishing eligibility for premium assistance;
- the name, address, and telephone number of the plan administrator and any other person maintaining relevant information in connection with the premium assistance;
- a description of the special 60-day second enrollment election period;
- a description of the Assistance Eligible Individual’s obligation to notify the plan of other plan or Medicare coverage that would make the Assistance Eligible Individual ineligible for the premium assistance and the penalty for failure to provide this notification;
- a description, displayed in a prominent manner, of the Assistance Eligible Individual’s right to a subsidized premium and any conditions on entitlement to the subsidized premium; and
- a description of the right to enroll in different coverage if the plan allows this option.
The legislation directs the DOL to publish a model notice by April 10 (within thirty days of the enactment of the ARPA).
Employers must provide notice of the subsidy and the sixty-day Special Enrollment Period by May 31. They must also notify eligible individuals when their period of subsidy assistance will expire and if their subsidy will end before September 30, 2021.
What Should Employers Do Now
To summarize, employers should now:
- Aggressively act to identify all Assistance Eligible Individuals who will or could be eligible for the COBRA subsidy during the subsidy period – April 1 to September 30, 2021. This includes former employees who were involuntarily separated or experienced reduced hours causing a loss of coverage and either elected COBRA, waived COBRA, or began but discontinued COBRA.
- Gather all information necessary to send out notices explaining the COBRA subsidy. It is probably prudent to wait to see the DOL’s proposed forms of notice before actually sending out the notices.
- Prepare to send COBRA enrollment paperwork to Assistance Eligible Individuals.
- Carefully track employees who elect to take advantage of the COBRA subsidy.
- Work with the health plan administrator to make sure that the COBRA subsidy requirements are met. Even where COBRA is outsourced to third-party administrators, the employer is responsible for compliance.
- Ensure that the mechanics are in place to claim the refundable tax credit.