As we previously reported [link]
, the American Rescue Plan Act of 2021 ("ARPA") passed on March 11, 2021. Contained within that law is a section requiring the preservation of health benefits for certain workers who were (or may become) eligible for COBRA. Essentially, the new law provides subsidized (i.e., free) COBRA coverage beginning April 1, 2021, for those that qualify for the assistance benefit.
The following highlights some of the significant provisions addressing the COBRA subsidy.
Certain Employees and Dependents are Eligible for Premium Assistance and Extension of COBRA Coverage:
Under ARPA, an Assistance Eligible Individual (AEI) is treated as having paid the full amount of their COBRA premium (i.e., receive premium assistance) between April 1, 2021 through September 30, 2021, if one of the following two criteria is satisfied:
The employee loses or has lost health insurance coverage due to an involuntary termination (except due to gross misconduct) or a reduction of hours; and
The employee is (or would have been) eligible for COBRA coverage during the period April 1-September 30, 2021, had they elected the coverage.
For those AEIs who are not enrolled in COBRA as of April 1, 2021, ARPA extends their COBRA election period. The two groups of people who are now eligible for the new COBRA subsidy are AEIs who are either:
- Previously separated employees (or their dependents) who initially declined COBRA coverage, but whose coverage would encompass the period April 1-September 30, 2021 (at least in part) had they elected coverage; or
- Individuals who initially enrolled in COBRA coverage, but allowed the coverage to lapse. For this group, they’d have to show that they would have been covered during the April 1-September 30, 2021 timeframe (at least in part), had they not allowed their COBRA coverage to lapse.
The new extended election period begins on April 1, 2021, and ends 60 days after the election notice is provided.
Notably, ARPA does not extend the normal COBRA coverage period. Thus, an AEI will lose COBRA eligibility once their original COBRA coverage period expires or if the employee (or their eligible dependent) becomes ineligible for COBRA because they became eligible for other group health insurance or Medicare.
A plan administrator must provide written notice of the COBRA premium assistance to all AEIs who already are enrolled in COBRA, as well as to AEIs who are eligible for the extended election period.
A "plan administrator" is defined as someone who is the designated individual under the plan, or the "plan sponsor" if an administrator is not provided. A "plan sponsor" is the employer in the case of a plan established or maintained by a single employer.
For notices involving AEIs who are eligible for the extended election period, these notices must be sent out by no later than May 30, 2021. Additionally, a plan administrator must provide written notice to the AEI at least 15 days, but no earlier than 45 days, before the premium assistance is to expire. The DOL is required to provide model notices for the notification requirements. These have not issued yet.
ARPA also provides tax credits for the COBRA subsidized premiums. However, the entity that provides the insurance and receives the COBRA premium is allowed the tax credit. What this means is that if the employer is not self-insured, the tax credit goes to the carrier providing the free COBRA coverage. In cases involving plans where the employer partially or fully provides coverage (self-insurance), the employer maintaining the plan will be able to enjoy the tax credit. Please consult with a tax specialist regarding the tax credits.
The DOL is expected to provide further guidance after April 1, 2021.
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