On March 11, 2021, President Joseph R. Biden signed the American Rescue Plan Act of 2021 (“ARP”). Among other provisions, the ARP makes COBRA coverage more affordable by subsidizing 100% of the COBRA premiums during the period beginning April 1, 2021, until September 30, 2021, for an employee or dependent who is a COBRA “qualified beneficiary” due to an involuntary termination of employment or an involuntary reduction in hours. This subsidy will not count towards an individual’s gross income.
The COBRA subsidy is only available to individuals: (1) who are involuntarily terminated or had their hours reduced; and (2) who are enrolled in COBRA coverage (or will elect such COBRA coverage) on or after April 1, 2021, and before the subsidy ends on September 30, 2021. The ARP simply suspends the eligible individual’s obligation to make COBRA premium payments for up to 6 months.
Extension of Election Period – Second Opportunity to Elect COBRA
The ARP also provides a second opportunity to elect COBRA coverage for certain qualified individuals through the extended election period. An individual who fits the eligibility criteria and who did not initially elect COBRA coverage or discontinued COBRA coverage before April 1 but would otherwise be within his or her 18-month COBRA coverage period between April 1 and September 30, 2021, can elect COBRA coverage from April 1 until 60 days after the plan administrator of the applicable group health plan notifies such individual of the extended election period. COBRA coverage for any COBRA election by these individuals during the extended election period will commence on and after April 1.
An individual electing COBRA during the extended election period may maintain the coverage only until the expiration of the COBRA coverage period (which is most often 18 months) he or she would have had if they had elected COBRA when first eligible. For example, an individual first eligible for COBRA on January 1, 2021, who did not elect COBRA until April 1, 2021, will be eligible for COBRA through June 30, 2022.
Plan Enrollment Option
Employers may allow eligible individuals to switch the coverage option that the individual initially elected at the time of their COBRA qualifying event. With some exceptions, an individual who is currently enrolled in COBRA continuation coverage has up to 90 days after the receipt of notice of the plan enrollment option to enroll in a different coverage option with that employer, provided that (1) the premium of such different coverage is not more expensive than the premium for the coverage in which the individual was enrolled at the time of such termination or reduction of hours, and (2) the different coverage is also offered to similarly situated active employees at the time the assistance eligible individual elects to enroll. If the individual elects the different coverage and such employer permits it, the COBRA subsidies shall apply towards the different coverage. Again, employers are not required by the ARP to make such plan enrollment options available.
If an eligible individual makes a COBRA premium payment, “the person to whom such payment is payable” (including a multiemployer plan, employer, and insurer) will reimburse the individual for the amount of the premium paid not later than 60 days after the date on which the individual made the premium payment.
Limitation on Subsidy
The subsidy terminates if the individual becomes eligible to enroll in any other group health plan or Medicare program. Individuals who fail to notify their employer or health plan that they are no longer eligible for the subsidy may face a financial penalty equal to the greater of $250 or 110% of the premium subsidy after termination of eligibility under the ARP.
The subsidy does not extend beyond the period of COBRA continuation coverage itself (which is most often 18 months) so if an individual’s COBRA coverage is set to expire, even if that is in the middle of the subsidy period, the ARP does not require the coverage to be extended through the end of September. For example, if an employee and dependents lost benefits as of March 1, 2020, 18 months of COBRA eligibility would expire at the end of August 2021 and premiums would be subsidized only for 5 months, namely, April through August 2021.
The multiemployer plan, employer, or insurer must provide COBRA subsidies to eligible individuals and pay or incur the COBRA premium cost. The ARP provides that the above-mentioned entities can recover the cost of the COBRA premiums that are subsidized by claiming a credit against its quarterly payroll tax liability. If the amount of the credit exceeds the employment taxes due for any calendar quarter, such excess will be treated as an overpayment that would be refundable. The credit, including the refundable portion, may be advanced under rules that will be set out by the Treasury Department. The amount of these credits will constitute the gross income of any entities allowed a credit under the ARP.
Notices to Individuals
The ARP includes specific notification requirements for employers to amend existing COBRA notice forms or send an additional written notice describing the availability of premium subsidies (along with other specific requirements) to all eligible individuals.
The ARP also requires the plan administrator to provide to each individual no more than 45 days but no less than 15 days before the expiration of the subsidy, a written notice that includes clear language regarding the premium subsidies, the expiration date, and how such individual may be eligible for coverage without any premium subsidies through COBRA coverage or a group health plan.
The Departments of Treasury, Labor and Health and Human Services are directed to issue regulations and guidance, including model notices for these notification purposes within 30 to 45 days of enactment.
What an Employer Should Do Now
All multiemployer plans, employers, or insurers subject to the ARP should have a compliance plan in place while awaiting further guidance and model notices from federal agencies. Employers may wish to consult their plan administrators to confirm they will be performing the notification obligations.
This article does not encapsulate all of the details required by the ARP, and additional or different regulations and guidance may be issued by federal agencies. For further information please contact Phyllis Karasov at firstname.lastname@example.org.