COBRA Update & Employer Requirements Under the American Rescue Plan

March 31, 2021

Along with assistance for Americans, the American Rescue Plan Act (ARPA) of 2021 brings additional obligations for employers relative to COBRA benefits, as well as benefits for qualified beneficiaries. The benefit provides a 100% premium subsidy for eligible individuals from April 1, 2021 through September 30, 2021. This benefit is initially paid by the employer (or former employer), and then reimbursed by the federal government with quarterly tax returns. For those of you that may remember COBRA subsidies from the 2009 American Recovery and Reinvestment Act, this subsidy is very similar.

Who is eligible?

Any individual enrolled in COBRA coverage at any point between April 1, 2021 and September 30, 2021 (the “Assistance Period”) because of an involuntary termination of employment or reduction of hours (for any reason) is entitled to 100% premium subsidy during this period. The involuntary termination or reduction in hours does not have to be pandemic related. This eligibility extends even to qualified individuals who previously did not elect COBRA, and who must be given another chance to elect it now (see below regarding Notice Obligations). The individual’s subsidy will terminate early should the individual become eligible for coverage under another group health plan (with a few exceptions); eligibility for Medicare; or the individual reaches the maximum COBRA coverage period applicable to that individual. 

How is the premium paid?

The premium is paid 100% by the employer, which then claims a tax credit against their quarterly payroll tax returns. There are a couple exceptions, in which the insurance carrier receives the subsidy directly or multiemployer plans, so if your employees are part of a union plan or trust, make sure you check with your COBRA administrator. The credit is a dollar-for-dollar credit, equal to the COBRA premium that would otherwise be paid by the individual. Given the quick pace for implementation, some beneficiaries may have already paid their own April premiums (or more), if this occurs inadvertently, the premium must be refunded – no later than 60 days after the premium payment was made.

Employer Notice Obligations

Employers are required to provide two notices to workers. The Department of Labor is in the process of creating updated model notices which may be used for this purpose. The first, will be available by April 10, 2021. Failure to provide the notices by the required timelines are treated as COBRA violations, with the associated penalties normally associated with COBRA notice failures.

  • The first notice includes the individual’s right to a subsidy and is due by May 31, 2021. Notice must be provided to individuals who are eligible for COBRA during the Assistance Period. This includes not only those already enrolled in COBRA during the April 1st – September 30th window but also the following individuals:
    • A qualified beneficiary who did not elect COBRA must be given a second opportunity to do so now.
    • A qualified beneficiary who did elect COBRA but has discontinued it (and would otherwise be eligible during the Assistance Period).
  • The second notice must also be provided later, notifying the individuals that the subsidy is coming to an end. This notice must be provided no earlier than 45 days before expiration, but no later than 15 days before the subsidy expires. The DOL will also provide a model notice by April 25, 2021.  

Employers may also offer the individual the option to enroll in an alternative medical plan no later than 90 days after receiving notice, so long as the premium for the alternative plan does not exceed the COBRA premium and meets certain requirements. The alternative coverage must also be offered to other similarly situated active employees (not just those who would have received the subsidy).

As noted previously, the US Department of Labor will provide a model notice for employer use. For those enterprising employers who don’t want to wait for the DOL notice, and want to send something out prior to April 1st, the employer notice must contain certain provisions:

  • Forms needed to establish subsidy eligibility
  • Name, address, and phone number for the plan administrator or COBRA administrator
  • A description of the extended election period
  • Notice of the obligation to notify the employer if the individual becomes eligible for other coverage through a group health plan or Medicare, and the penalties for failure to comply
  • Prominent notice of the right to premium subsidy and conditions on entitlement
  • Description of the option to enroll in different coverage if permitted by the employer

Beneficiary Obligations

Qualified beneficiaries must elect COBRA no earlier than April 1, 2021 and no later than 60 days after the employer provides the required notice. The COBRA period will not extend beyond what would have been the normal COBRA period and will not be retroactive unless the individual pays for the retroactive coverage. If a qualified beneficiary loses subsidy eligibility because the individual becomes eligible for coverage under another group health plan or Medicare, the individual is required to notify the employer or may face a $250 penalty, which may increase to 110% of the cost of the subsidy if doing so was fraudulent.

What should employers do now to prepare?

As noted previously, the Department of Labor is preparing a model notice for employer use which must be made available no later than 30 days after ARPA was enacted and is not yet available. While the notice may not be ready yet, employers can still prepare by beginning to gather information about eligible individuals, both those who may have previously declined COBRA coverage (but are otherwise eligible), and those who are currently enrolled in COBRA and who will continue to be eligible during the Assistance Period. This would involve reviewing all terminations back to November 2019, as those individuals would have been eligible for COBRA for 18 months (April 30, 2021). Employers may also wish to proactively notify former employees who are not eligible for the premium subsidy because they voluntarily separated or experienced another type of qualifying event (death, etc.), of their lack of eligibility. Now would also be a very good time to begin a calendaring system to ensure all notices are provided in a timely manner, as there are a number of deadlines involved and this may become rather complicated given the variety of dates upon which individuals become eligible or when their subsidy expires.