On April 7, 2021, the United States Department of Labor ("DOL") issued FAQs about COBRA Premium Assistance under the American Rescue Plan Act of 2021. As discussed in our prior CM [link], the American Rescue Plan Act of 2021 ("ARPA") contained a special provision authorizing subsidized (i.e., free) COBRA for certain employees impacted by COVID-19 beginning April 1, 2021. The following are highlights from the DOL's FAQs. These FAQ’s can be found at https://www.dol.gov/cobra-subsidy.
Q: What Is ARPA COBRA Premium Assistance?
Free COBRA for up to 6 months for Assistance Eligible Individuals (AEI). The free benefit is available for up to six months covering the period April 1, 2021, through September 30, 2021. An employer or plan that provides the free coverage is entitled to a tax credit for the amount of the premium assistance offered.
Q: Which Insurance Plans Are Eligible For This Premium Assistance?
COBRA premium assistance is available on all group health plans sponsored by private-sector employers or unions, as well as certain plans sponsored by State or local governments subject to the Public Health Service Act. Premium assistance is also available for smaller employers (under 20 employees) under state mini-COBRA laws.
Q: Who Is Entitled to the Temporary COBRA Premium Assistance?
Certain former Employees and their COBRA eligible dependents who lost their medical coverage due to the layoff or other involuntary termination of the former employee (other than for “gross misconduct”) or a reduction in hours. Notably, the benefit is available even if the employee or covered dependents originally declined COBRA coverage when the COBRA qualifying event occurred or they elected the coverage, but then let it lapse.
Q: How Is Eligibility For The Subsidy Determined?
This temporary premium assistance is available to any Assistance Eligible Individual (AEI) who was a qualified COBRA beneficiary when the action precipitating the COBRA coverage occurred and is still eligible for benefits for any part of the period April 1, 2021 - September 30, 2021.
These people generally fall into two groups:
The employee (and dependents) became eligible for COBRA due to a reduction in hours (i.e. reduction in hours due to change in business hours, a change from full-time to part-time, taking a temporary leave of absence, or participation in a lawful labor strike, as long as the individual remains an employee at the time that hours are reduced; or
The employee (and dependents) became eligible for COBRA due to a layoff or other involuntary termination of employment (for reasons other than “gross misconduct”).
Note that an individual is not eligible for this premium assistance if they are eligible for other group health coverage now (like through a new employer or a spouse's plan) or eligible for Medicare.
Q: How long will the premium assistance last?
It depends upon the original COBRA period. If the original COBRA coverage that was offered would extend to any time between April 1, 2021 through September 30, 2021, then the free COBRA is available for those months.
However, even if eligible, the subsidized COBRA period will end earlier when:
- The individual becomes eligible for another group health plan or becomes eligible for Medicare; or
- The individual reaches the end of their maximum COBRA coverage period, measured from the time the employee (or dependent) initially became COBRA eligible.
Individuals receiving COBRA premium assistance must notify their plans if they become eligible for coverage under another group health plan or Medicare. Failure to do so can result in a tax penalty.
Q: Is an Employee/Dependent who initially declined COBRA eligible for this free coverage?
Yes. Two groups of people qualify for this assistance: (i) those who timely elected COBRA coverage but let it lapse; and (ii) those who declined the initial COBRA enrollment when offered.
Importantly, all individuals eligible for this additional COBRA election (employees and their covered dependents) must receive a written notice from the plan sponsor by May 31, 2021, informing them of this opportunity. They will have 60 days after the notice is provided to elect COBRA.
Note that this additional election period does not extend the original COBRA coverage beyond the original maximum period. (That’s 18 months for most employees and 24 months if the employee is disabled when they became eligible; 36 months for eligible dependents).
Q: Does the ARPA change any state program requirements or time periods for election of COBRA coverage?
Q: Is the Extended Coverage Really Free?
Yes. Plans and issuers will not be collecting premium payments from AEIs because the coverage is free to them. Retroactive coverage to April 1, 2021, is available to any AEI who timely elects this free benefit if those month(s) would have been covered in their initial COBRA election period.
Q: Does ARPA impose new notice requirements?
The law also requires plans and issuers to provide individuals with a notice 15-45 days before the individual's premium assistance expires telling them when their free COBRA will end how that the individual may be eligible for coverage without premium assistance through COBRA.
Failing to timely provide this will be expensive. Employers or multiemployer plans are subject to an excise tax of up to $200 per day for not timely issuing this notice. They also may be responsible for medical expenses incurred by the employee (or dependents) during this period.
Q: May an individual enrolled in COBRA switch to a different coverage option offered by the same employer?
Yes, but only if the group plan allows for this. Changing coverage will not cause an individual to be ineligible for COBRA premium assistance and so long as:
- The COBRA premium for the different coverage is the same or lower than the coverage the individual had at the time of the qualifying event;
- The different coverage is also offered to similarly situated active employees; and
- The different coverage is not limited to only excepted benefits like a qualified small employer health reimbursement arrangement ("QSEHRA") or a health flexible spending arrangement ("FSA").
We will continue to monitor major COVID-19 related developments that impact the workplace. If you have any questions about the matters discussed in this issue of Compliance Matters, please call your firm contact at 818-508-3700 or visit us online at www.brgslaw.com.
Richard S. Rosenberg
Katherine A. Hren
Ballard Rosenberg Golper & Savitt, LLP