The U.S. Department of Labor (DOL) posted on its website guidance and model notices to help employers comply with the federal COBRA premium subsidy put in place by the American Rescue Plan Act (ARPA).
"The American Rescue Plan provides much-needed relief to U.S. workers as they face critical decisions about their health coverage," said DOL Acting Assistant Secretary for Employee Benefits Security Ali Khawar. "The guidance and notices … will help to inform individuals entitled to the COBRA premium assistance about the assistance available to them."
"In general, it's always helpful to have the DOL walk through new legislation," said William Sweetnam, legislative and technical director at the Employers Council on Flexible Compensation (ECFC), which represents sponsors of account-based benefit plans. He also anticipate guidance from the IRS and Treasury Department on the COBRA premium subsidy to be forthcoming.
Reviewing the Basics: 100% Federal COBRA Subsidy
Under the ARPA, the federal government will pay 100 percent of COBRA insurance premiums for eligible employees who lost their jobs and for their covered relatives through September 2021, allowing them to stay on their company-sponsored health plan. President Joe Biden signed it into law on March 11.
Employers will obtain the subsidy through a payroll tax credit against employers' quarterly taxes and will be responsible for paying health insurance carriers for the premiums. Both fully insured and self-insured group health plans subject to federal COBRA are eligible for the credit against their Medicare FICA payroll taxes and must provide the COBRA premium subsidy to assistance eligible individuals (AEIs) who have elected COBRA coverage, starting April 1.
If the credit exceeds the amount of payroll taxes due from employers, the credit would be refundable when employers submit Form 941, their quarterly tax return. The credit could also be advanced under rules that will be set by the Treasury Department.
If AEIs inadvertently pay premiums during the period from April 1 through Sept. 30, 2021, they must be issued a refund within 60 days.
New Model Notices
The ARPA requires group health plans to provide, by May 31, notices to AEIs who are losing their health care coverage and are eligible for COBRA premium assistance. This notice may be provided separately or by using a revised COBRA election notice, such as the new model general notice (see link below). Employers can begin using the new notices immediately.
The ARPA also requires that plans and issuers provide AEIs with a Notice of Expiration of Premium Assistance that explains the subsidy will expire soon for them—either because their COBRA eligibility has reached its maximum time limit or because the subsidy period is ending as of Sept. 30, the date of the expiration and that the individual may be eligible for coverage without any premium assistance.
The model notices published April 7 include:
Model General Notice and COBRA Continuation Coverage Election Notice: MS Word and PDF.
Model Notice in Connection with Extended Election Period: MS Word and PDF.
Send this notice to AEIs who are still in their 18-month COBRA window in April 2021. "For plans that terminate coverage on the last day of the month, this will be anyone who was involuntarily terminated or lost coverage due to a reduction in hours on or after Oct. 1, 2019," Barnett said. The notice is due to eligible employees before May 31, "whether the individual is currently enrolled in COBRA, previously declined COBRA or enrolled and later dropped COBRA," she explained.
This notice is for COBRA coverage subject to state health plan continuation requirements.
Model Notice of Expiration of Premium Assistance: MS Word and PDF.
Send this notice to AEIs 15 to 45 days before their COBRA subsidy will expire. "You do not need to send this notice if the individual is losing the subsidy due to becoming eligible for other group health plan coverage or Medicare," Barnett noted.
Summary of COBRA Premium Assistance Provisions under the American Rescue Plan Act of 2021: MS Word and PDF.
This document includes a form for employees to request treatment as an assistance eligible individual.
The new guidance highlights key requirements put in place by the ARPA and also clarifies several issues, such as those below:
The guidance states that the premium assistance can last from April 1 through Sept. 30, 2021, and that it will end earlier if COBRA enrollees:
Become eligible for another group health plan, such as a plan sponsored by a new employer or a spouse's employer but not including excepted benefits, a qualified small employer health reimbursement arrangement (QSEHRA) or a health flexible spending account (FSA), or if they become eligible for Medicare.
Reach the end of their maximum COBRA continuation coverage period, which is generally 18 months from the end of employment but can be extended to 29 months for people with disabilities, and up to 36 months if there is a second qualifying event during the initial continuation coverage period, such as the divorce or separation of the employee and spouse.
In February, federal agencies issued guidance providing pandemic-related extended deadlines to elect COBRA or pay for COBRA coverage.
"One of the most important questions answered by the new FAQs helped address how the subsidy interacts with the previous guidance," blogged John Kirk, an attorney at Graydon. The FAQs "clarified that the subsidy election period does not cut off an individual's pre-existing right to elect COBRA continuation coverage, including under the extended time frames" he noted. "However, even with any extended time frames, the premium assistance is only available for periods from April 1, 2021 through Sept. 30, 2021."
The guidance explains that the COBRA premium subsidy is available to employees who lost employer-subsidized group coverage because they involuntarily had their working hours reduced (such as reduced hours due to change in a business's hours of operations) or involuntarily had their employment ended. However, the reduction in hours or the job loss need not be directly caused by the COVID-19 pandemic. Eligible employees must affirmatively elect to receive COBRA continuation coverage.
According to ECFC's Sweetnam, "Unfortunately, the DOL guidance does not address a concern of many employers and COBRA administrators: Are individuals who stopped working on the own volition due to COVID concerns—such as if their kids couldn't go to school and they needed to be home to care for them—eligible for this subsidy?"
He pointed out that the Coronavirus Aid, Relief, and Economic Security (CARES) Act allows such people to receive unemployment payments, "yet the DOL guidance [apparently] doesn't allow them to be eligible for this COBRA subsidy. It would be helpful if the DOL addressed this issue directly."
On another eligibility issues, Napier-Joyce noted that the FAQs clarify that "eligibility for coverage under another group health plan, including that of a spouse's employer, will disqualify the employee from the subsidy. Employees must certify on election forms that they are not eligible for such coverage and will notify the employer if they subsequently become eligible for coverage" through another employer, and "failure to do so will subject the individual to a tax penalty."
Typically with COBRA, insurance premiums are limited to the full cost of the coverage plus a 2 percent administration charge. The guidance states that AEIs "will not need to pay any part of what they would otherwise pay for their COBRA continuation coverage, including any administration fee that would otherwise be charged."
State COBRA laws
Some states impose their own COBRA coverage requirements, which can extend beyond the time limits for federal COBRA. California and New York, for instance, requires COBRA for terminated employees with no other qualifying conditions for a period of 36 months. States may also require health care continuation coverage by small employer plans not subject to federal COBRA.
The new guidance states that "the premium assistance is also available for continuation coverage under certain state laws," and applies to "state continuation coverage ('mini-COBRA') laws." The ARPA, however, does not change any requirement of a state continuation coverage program, the guidance states. The law "only allows assistance eligible individuals who elect continuation coverage under state insurance law to receive premium assistance from April 1, 2021, through Sept. 30, 2021."
The implication here is that if state mini-COBRA laws expand the COBRA period (such as to 36 months instead of 18 for basic COBRA), then the federal subsidy applies for those who have been receiving COBRA coverage beyond 18 months, but the subsidy will still expire on Sept. 30. The subsidy also applies to small employer plans subject to state continuation-coverage requirements.
Employee Credits or refunds
Wrote Greta Cowart, a partner in the Dallas office of law firm Jackson Walker, "If an individual eligible for the ARPA COBRA subsidy has already paid a COBRA premium for April 2021 (or any other month in the ARPA COBRA subsidy period), the FAQs instruct the individual to contact the plan administrator or employer to discuss a credit against future premium payments (presumably after the subsidy period, if the individual’s maximum period of coverage extends past the subsidy period) or a refund,"
She added, "An employer can decide which method it will adopt to handle mistaken premium payments."
Employers must provide the Notice of Availability to AEIs before June 1 but "it is advisable to do so as soon as possible," wrote Lisa Nelson, vice president for employee benefits, compliance and regulatory affairs, at Leavitt Group, a San Diego-based benefits brokerage.
"Employers may lean on their COBRA administrator for assistance with compliance with these new notice requirements," she noted. When administering COBRA in-house, she advised setting up a system to track the timing of any AEI entitled to the Notice of Availability within 60 days and the Notice of Expiration 45 days before their subsidy expires.
The DOL plans to set up an external review process available to employees who were not offered the subsidy by their employer but believe they are AEIs due to a reduction in hours or involuntary termination "with the exception of gross misconduct (not poor performance)," Nelson said. "While this review process is not yet up and running by the DOL, it will offer broad leniency to the AEI," she added. "Therefore, it is advisable, employer–plan sponsors do the same."
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