American Rescue Plan Act Offers Second Chance for COBRA Recipients
Under the American Rescue Plan Act (ARPA), certain individuals are entitled to receive fully subsidized COBRA coverage for up to six months beginning April 1, 2021. As a result, affected employers need to update their COBRA processes as quickly as possible.
Below, the Much team answers the questions that employers need to ask to determine if they are subject to and promote compliance with ARPA's requirements.
Who Is Eligible to Receive the Subsidy?
Employees and their covered family members are considered "assistance eligible individuals" under ARPA if:
They are otherwise eligible for COBRA coverage as "qualified beneficiaries" because employer plan coverage ended as a result of involuntary termination of employment or reduction of hours, and
The qualified beneficiaries are receiving or are eligible to receive COBRA coverage during the six-month period beginning April 1, 2021 and ending September 30, 2021.
ARPA does not limit the availability of the subsidy based on whether the qualifying event was directly connected to the COVID-19 pandemic. Assistance eligible individuals receiving the subsidy are required to notify their plan sponsors if they become eligible for other employer coverage or Medicare, at which point eligibility for the subsidy will end.
Do Employers Have to Provide COBRA Coverage at No Cost?
Under ARPA, employers are required to either provide COBRA coverage to assistance eligible individuals at no cost or to cover the cost charged by an insurer. Employers are then eligible to take a payroll tax credit equal to the cost of coverage. The credit can be advanced if the cost of coverage for eligible individuals exceeds an employer's tax liability.
Which Types of Continuation Coverage Are Eligible for the Subsidy?
Employers with fewer than 20 employees are generally subject to state and not federal laws regarding the continuation of health care coverage, sometimes called state COBRA or "mini" COBRA. However, the ARPA subsidy is available for 100 percent of the cost of continuation coverage provided under any medical, dental or vision plan – whether the continuation coverage is provided under federal or state law. ARPA specifically excludes COBRA coverage under flexible spending accounts from eligibility for the subsidy.
For purposes of this article, "COBRA" refers to both federal and state continuation coverage mandates.
What If a Qualified Beneficiary Previously Waived COBRA Coverage?
ARPA provides a second election window for assistance eligible individuals who previously waived or dropped COBRA coverage but are still within their 18-month COBRA coverage period. The following example illustrates how the election window works:
Angie Smith and her family received medical coverage under her employer's plan until her termination of employment on March 16, 2020. Angie and her family waived COBRA coverage that would have otherwise been effective April 1, 2020.
Under ARPA, the Smiths are assistance eligible individuals. They may elect to receive fully subsidized COBRA coverage starting April 1, 2021. Angie's employer may not require them to pay retroactive premiums for the period from April 1, 2020 through March 31, 2021 in order to take advantage of the ARPA election window.
Angie and her family are eligible to receive the ARPA subsidy through September 30, 2021, when their 18-month COBRA eligibility period ends.
Important note: The Smiths' COBRA coverage (and ARPA subsidy) would end on August 21, 2021 if Angie's employment had terminated on February 15, 2020. ARPA does not extend COBRA eligibility beyond the 18-month period following the loss of health plan coverage.
As shown in the example, the ARPA election window differs from the extended COBRA election deadline provided under last year's CARES Act, since assistance eligible individuals are not required to pay missed premiums back to the original COBRA eligibility date.
Is There an Election Deadline for Assistance Eligible Individuals Who Are Not Already Receiving COBRA?
Assistance eligible individuals who previously waived or dropped COBRA coverage must make an election to start or reinstate coverage within 60 days of receiving notice from their employer about the availability of the subsidy. (Employer notice requirements are discussed later in this article.)
Are Eligible Assistance Individuals Limited to Electing the Coverage They Had Before They Were Eligible for COBRA?
Employers are permitted, but not required, to allow assistance eligible individuals to elect a different coverage option than the one that was in effect when their coverage first terminated, as long the alternative coverage:
is offered to similarly situated active employees,
includes more than just "excepted benefits" such as dental and/or vision coverage, and
does not cost more than the prior coverage
ARPA specifically excludes coverage under qualified small employer HRAs and flexible spending accounts from the definition of alternative coverage.
Do Employers Need to Notify Assistance Eligible Individuals About the Subsidy?
Employers must notify assistance eligible individuals of their right to receive the COBRA subsidy by May 31, 2021. This includes both individuals currently receiving COBRA coverage and those who previously waived or dropped coverage but are still within their eligible coverage period. Employers will also have to update their standard COBRA notices for qualifying events occurring after April 1, 2021. The Department of Labor is required to issue model notices by April 10, 2021.
Employers will also be required to notify assistance eligible individuals when their subsidies are about to expire. The notice must be provided between 15 and 45 days prior to the date that the subsidies end. The Department of Labor must provide a model expiration notice by April 25, 2021.
Group health plan sponsors should take the following steps as soon as possible in order to ensure compliance with ARPA's requirements with respect to the COBRA subsidy:
Identify all assistance eligible individuals who became eligible for COBRA as a result of an involuntary termination of employment or reduction in hours. Assistance eligible individuals may have original COBRA qualifying events occurring on or after November 1, 2019.
Determine whether they will allow assistance eligible individuals to change their coverage to another option with equal or lesser cost.
Develop a plan for providing required notices to assistance eligible individuals. Employers that utilize outside COBRA administrators should contact them as soon as possible to discuss the process.
Work with their accountants to ensure that they track the cost of subsidized COBRA coverage and properly apply the resulting payroll tax credits.
Where appropriate, revise severance plans and model separation agreements to include eligibility for the subsidy.
Be prepared for the rate of COBRA enrollment to increase as a result of the subsidy. This may impact future premium rates.