Among the American Rescue Plan Act’s many provisions, it provides for 100 percent premium subsidies for health insurance continuation under the federal Consolidated Omnibus Budget Reconciliation Act (COBRA) for certain individuals who elect COBRA continuation coverage between April 1, 2021, and September 30, 2021.
The U.S. Department of Labor (DOL) recently issued implementing guidance for this new law, which requires employers to cover the initial cost of continuing group health care coverage for eligible individuals, for which they will receive a payroll tax credit, and imposes several new COBRA notice requirements.
COBRA Subsidy Eligibility
The 100 percent COBRA premium subsidies are for “assistance eligible individuals,” which the law defines as any qualified beneficiary who, due to an involuntary termination or reduction in hours, becomes eligible for and elects COBRA continuation coverage during the period beginning April 1, 2021, and ending September 30, 2021.
Individuals who were involuntarily terminated for “gross misconduct” or who voluntarily resigned their position are not eligible. Additionally, individuals become ineligible for premium assistance if they become eligible for coverage under another group health plan, such as through a new employer or spouse’s plan, or Medicare.
The ARPA also allows a special second election opportunity for individuals who declined COBRA coverage or dropped coverage in the past and who would otherwise be eligible for COBRA as of April 1, 2021, if it were in effect. In other words, ARPA reaches back to qualifying events (involuntary termination or reduction in hours) that happened before ARPA’s enactment and allows individuals to make a COBRA election and take advantage of the subsidy if they’re still eligible for COBRA coverage during the subsidy period. ARPA doesn’t extend the applicable 18-month COBRA period, so qualifying individuals will generally be eligible for assistance only if they were first eligible for COBRA coverage in November 2019 or later
Under the ARPA, individuals eligible for the second election opportunity have a special election period beginning April 1, 2021, and ending 60 days after the plan administrator provides a required notice to these individuals of their potential eligibility for premium assistance.
Ordinarily, a qualified beneficiary may only continue coverage that’s in effect immediately before the qualifying event. The ARPA, however, states that plan sponsors may, but are not required to, allow qualified beneficiaries to switch their group health plan election to a different plan provided that certain conditions are met. If permitted by the plan sponsor, changing to an alternate coverage option must be made within 90 days of when the individual was notified of the alternative plan enrollment option.
For all qualified beneficiaries who become eligible for COBRA between April 1, 2021, and September 30, 2021, the ARPA requires plan administrators to provide notice to these individuals that COBRA premium assistance is available, and they have the option to enroll in different coverage if the employer permits it. Employers may amend existing notice forms or use a separate document to meet notice requirements.
Plan administrators must also provide notice of the COBRA premium assistance and special extended election provisions for individuals who declined COBRA coverage or dropped coverage in the past and who would otherwise be eligible for COBRA as of April 1, 2021, if it were in effect. This notice must be provided by May 31, 2021, and must include the same information specified above.
The ARPA also requires plan administrators to notify assistance eligible individuals about when the premium subsidy will end and that they may be eligible for coverage without assistance through continuation of COBRA or coverage under a group health plan. This notice must be provided no more than 45 days and no less than 15 days prior to the premium assistance expiration.
The DOL issued the following model notices with all the specific information required for the ARPA’s new COBRA notice requirements:
- Model General Notice and COBRA Continuation Coverage Election Notice
- Model Notice in Connection with Extended Election Period
- Model Alternative Notice
- Model Notice of Expiration of Premium Assistance
Payroll Tax Credits
The ARPA states that the “person to whom premiums are payable” can claim a tax credit for COBRA premiums not being paid by the assistance eligible individuals. In many cases, this will be the employer, who must front the initial cost of continuing group health care coverage and then be reimbursed by dollar-for-dollar tax credits against quarterly Medicare payroll taxes. The ARPA provides that, to the extent that the credit amount exceeds the payroll taxes against which they are taken, the excess amount will be treated as an overpayment and refunded.
The ARPA also allows credits to be advanced according to forms and instructions that will be provided by the Treasury Department.
Further guidance explaining the details and timing of the tax credit provisions is expected.
Employers should work with their legal counsel, COBRA administrators and/or insurers to develop a compliance plan with respect to these new requirements. Employers should review the DOL’s model notices and adapt them as necessary to ensure compliance with the notice requirements.
Employers can visit the DOL’s new COBRA Premium Subsidy page, which contains the model notices and a FAQ page with more details on the ARPA’s COBRA provisions.
Employers should also look for additional guidance forthcoming from the DOL and/or IRS addressing the specifics of the tax credit mechanism and further clarifying the ARPA’s requirements with respect to the COBRA subsidies. CalChamber will continue to provide updates as additional guidance and resources are released.
CalChamber members can read more about COBRA Subsidies Under the American Rescue Plan Act in the HR Library. Not a member? See how CalChamber can help you.