The American Rescue Plan Act of 2021 (the ARPA) includes COBRA subsidy provisions aimed at making health plan coverage accessible and affordable. The ARPA creates a 6-month subsidy period (April 1, 2021 to September 30, 2021) during which certain “assistance eligible individuals” (AEI) may qualify for a 100% subsidy for COBRA coverage (including the 2% administration fee). Qualifying AEIs would pay no cost for monthly COBRA premiums for certain coverage (medical, dental, vision, etc.) if the individual is eligible for COBRA coverage during the subsidy period and had a qualifying event within the last eighteen (18) months from any date in the subsidy period. The subsidy period does not extend the maximum COBRA coverage period. Rather, the ARPA simply suspends the AEI’s obligation to make COBRA premium payments for up to 6 months.
These rules are not optional for employer sponsored group health plans. All group health plans subject to COBRA, except health flexible spending accounts (FSA), must provide this subsidized coverage.
Subsidies only Available to Specified COBRA Eligible Individuals
Only those qualified beneficiaries who trigger COBRA continuation coverage because of an involuntary termination of employment or a reduction in hours and whose current COBRA continuation coverage period would cover some or all of the subsidy period (April 1 – September 30) are considered AEI, but only if they elect COBRA coverage. Individuals who qualify for COBRA because of voluntary termination, retirement, death, or reaching the maximum dependent age are not AEIs and are not eligible for the subsidy.
Subsidies only Available if Subsidy COBRA Election Made
ARPA also creates an extended COBRA election period for any AEIs – even AEIs who previously declined COBRA coverage, or whose coverage was terminated due to nonpayment of premiums. Provided the individual meets the AEI definition, an AEI may enroll and receive the subsidized coverage for only the remainder of the otherwise applicable COBRA period. For instance, if the AEI became eligible for COBRA effective December 1, 2019, the member’s applicable COBRA coverage period would end May 31, 2021. In this case, the AEI is only eligible for the subsidy during April and May 2021. ARPA does not change the fact that COBRA continuation coverage will still terminate due to other group health coverage, Medicare eligibility, and other circumstances.
Plan Sponsor Notice Requirements
ARPA imposes new notice requirements on group health plans, which provide AEIs with information regarding the availability of the subsidy, the extended election period for COBRA coverage, and the expiration of the subsidy. The required notices must be provided to AEIs no later than May 31, 2021. The U.S. Department of Labor is required to issue a model notice by late April 2021. Plan sponsors are also required to issue a notice to AEIs that the COBRA premium subsidy period is ending. This termination notice must be provided between 15 and 45 days before the end of the subsidy period. You should note that there are penalties of $250 (or more for intentional failures) for failing to provide the notices. No penalties will be assessed for failures due to reasonable cause and not to willful neglect.
Plan Sponsor / Employer Reimbursement of Subsidy Payments
The plan sponsor has an obligation to provide subsidized COBRA coverage and pay or incur the AEI’s COBRA premium cost. However, the plan sponsor can recover the cost of the coverage from the federal government by claiming a credit against its quarterly Medicare payroll tax liability. The plan sponsor can get a credit – or if the amount paid in subsidies exceeds the taxes due – can get a refund.
Optional Coverage Options for AEIs
Group health plans may, but are not required to, allow AEIs to enroll in different coverage options available from the employer. If the employer decides to allow this, they must include this information in the election notice and they must allow 90 days for the AEI to change the election (from the date of the notice).
How can MedBen Help?
If MedBen performs COBRA services for your health plan, MedBen will be working on preparing notices for affected AEIs. We will need to get information from each plan sponsor on which COBRA eligible individuals are AEIs by letting us know which of these individuals were subject to an involuntary termination of employment or reduction in hours.
For more information on this, feel free to contact Caroline Fraker or Erin Kelly in MedBen’s Compliance Department or Sharon Mills in MedBen’s Administration Department.