New COBRA Premium Subsidies Take Effect April 1, 2021
The recently enacted American Rescue Plan Act of 2021 (ARPA) makes temporary but significant changes to Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) coverage rules. They provide:
- A 100% subsidy for COBRA premiums paid for any coverage provided between April 1 and September 30, 2021;
- Another opportunity to elect COBRA coverage for qualified beneficiaries who previously did not elect COBRA or who previously elected COBRA and dropped the coverage; and
- The option to allow COBRA covered individuals the chance to change their benefit election to a cheaper option.
ARPA provides that Assistance Eligible Individuals (AEIs) will not have to pay premiums for COBRA coverage provided between April 1, 2021 and September 30, 2021. Instead, employers or other persons to whom these amounts were to be paid are now required to pay these COBRA premiums (including applicable administrative fees) and claim an off-setting tax credit for these amounts.
An AEI is a qualified beneficiary who, between April 1 and September 30, 2021, is eligible for COBRA coverage due to an involuntary termination (other than for gross misconduct) or a reduction in hours and elects such coverage. Individuals whose COBRA coverage arises from a voluntary termination are not entitled to premium assistance. The premium subsidy ends upon the earliest date on which the AEI’s maximum COBRA period ends or the AEI becomes eligible for either other group health plan coverage that is not limited to excepted benefits or Medicare.
Additional Assistance Eligible Individuals
Individuals who were eligible to elect COBRA continuation coverage due to involuntary termination but who had not yet elected coverage as of April 1, 2021, or who had elected such coverage but discontinued it prior to April 1, 2021, are also entitled to COBRA premium assistance. These AEIs must elect COBRA coverage during a period that begins on April 1, 2021 and ends 60 days after the plan administrator provides a notice that they qualify for the new COBRA premium assistance program. These notices must be provided no later than May 31, 2021. Model notices are to be issued by the U.S. Department of Labor (DOL) no later than April 10, 2021.
Permissible Coverage Election Changes
ARPA also allows but does not require plan sponsors to permit qualified beneficiaries to switch their group health plan elections to a different employer-sponsored plan provided that:
- The premium cost for that plan is not higher than for the plan in which the qualified beneficiary is already enrolled;
- The plan sponsor offers the plan to similarly situated active employees; and
- The coverage is not just for excepted benefits, a qualified small employer health reimbursement arrangement (QSEHRA), or a health flexible spending arrangement (HFSA).
Premium Assistance Notices
Premium assistance notices can be included in the COBRA election notice regularly used by the plan sponsor or provided as a separate document. They must be in writing, must be clear and understandable, and must:
- Describe any forms necessary for establishing COBRA premium assistance eligibility;
- Provide the name, address, and telephone information for the plan administrator or other individual maintaining relevant information regarding COBRA premium assistance;
- Explain the extended election period available to the those were eligible to elect COBRA coverage on or after April 1 but who have not done so or who already elected but then discontinued COBRA coverage (the additional Assistance Eligible Individuals described above);
- Notify qualified beneficiaries of their obligation to tell the group health plan if they become eligible for other group health coverage or Medicare and the penalty for failing to do so;
- Prominently describe the right to subsidized coverage and any conditions for receiving subsidized coverage; and
- If permitted by the plan sponsor, describe the option to enroll in different coverage.
Notice of Expiration of Premium Assistance
Except when COBRA coverage ends because an individual becomes eligible for other group health coverage or Medicare, plan administrators must provide a separate written notice AEIs prior to the expiration of premium assistance that clearly states when the premium assistance will end. It must also explain that the individual may still be eligible for COBRA or other group health coverage without premium assistance.
The premium assistance expiration notice must be provided during the period that begins 45 days before premium assistance will expire and ends 15 days before premium assistance expires. The DOL will provide model premium assistance expiration notices by April 25, 2021.
Premium Assistance Tax Credits
Under ARPA employers that pay the COBRA premium will entitled to a dollar-for-dollar credit toward the payment of quarterly employment taxes. The credit is not available for any amount paid for which the employer is also claiming a tax credit as qualified wages under the health coverage provisions of the Families First Coronavirus Relief Act (FFCRA) and the Coronavirus Aid, Relief and Economic Security Acts (CARES Act).
Employers must also refund any COBRA premiums paid by individuals who were eligible for premium assistance for any period of coverage between April 1, 2021, and September 30, 2021. These refunds must be made no later than 60 days after the date on which an individual made the premium payment. A tax credit can also be claimed to offset these refunded premiums. The Treasury Department is expected to provide further guidance on the mechanics of receiving available tax credits at a later date.