COBRA Subsidy Under the American Rescue Plan Act of 2021: New DOL Guidance & Model Notices
On April 7, 2021, the Department of Labor (“DOL”) published its model notices and a set of frequently asked questions (“FAQs”) regarding the new COBRA subsidy under the recently enacted American Rescue Plan Act of 2021 (“ARPA”). These notices and FAQs are available here.
We discussed the ARPA COBRA subsidy in a prior bulletin. Generally, ARPA allows “assistance eligible individuals,” or “AEIs,” to receive free COBRA coverage, including state-required continuation coverage, for any coverage periods between April 1, 2021 and September 30, 2021 (the “subsidy period”) for which the AEIs would otherwise be eligible for COBRA. Employers must subsidize 100% of the AEI’s COBRA costs for the subsidy period and can claim a credit for such costs on their quarterly Forms 941 for payroll taxes. ARPA generally defines AEIs as qualified beneficiaries, such as a covered employee, spouse, or child, who (1) are eligible for federal or state COBRA by virtue of a covered employee’s reduction in hours or involuntary termination for any reason (other than gross misconduct); and (2) actually elect federal or state COBRA. However, an individual cannot receive the COBRA subsidy once he or she becomes eligible for Medicare or coverage under another group health plan (e.g., under a new employer’s plan or a spouse’s employer’s plan), or once his or her maximum coverage period expires (e.g., if the AEI’s maximum COBRA period of 18 months expires as of May 31, 2021, then he will only be entitled to the COBRA subsidy for the months of April and May, even though the subsidy period extends through September).
Another key provision deals with a second opportunity to elect COBRA. ARPA requires that AEIs who lost coverage (due to a reduction in hours or involuntary termination) prior to April 1, 2021 and who had initially rejected or began and stopped COBRA coverage, be given a second opportunity to elect COBRA to take advantage of the COBRA subsidy. However, this opportunity only applies if the AEI’s maximum coverage period (normally 18 months) extends into the subsidy period. This effectively means that qualified beneficiaries who were eligible for federal COBRA due to a covered employee’s reduction in hours or involuntary termination on or after November 1, 2019 (18 months from the end of the first month of the subsidy period), must be given a second opportunity to elect.
ARPA also requires that employers or COBRA administrators provide certain notices to AEIs. Congress directed the IRS and the DOL to issue implementation guidance as well as model notices for the purposes detailed above by mid-April. The FAQs and model notices published by the DOL on April 7th make up the first wave of guidance, and we expect that the IRS and/or DOL will publish further guidance, particularly with respect to what constitutes an “involuntary” termination, similar to when Congress offered a COBRA subsidy in response to the 2008 economic crisis.
The new FAQs clarify several points with respect to the ARPA COBRA subsidy:
- The premium subsidy is available for continuation coverage under both federal COBRA and state continuation coverage. As suggested by the text of ARPA, the DOL confirms that AEIs can receive either free federal COBRA or free state continuation coverage. However, it seems that the second opportunity to elect requirement does not apply if an employer only offers state COBRA and if the AEI previously rejected or elected and later stopped state COBRA; in those cases, providing the second opportunity would be optional for the employer.
- An individual will not qualify as an AEI for the COBRA subsidy and second opportunity to elect once he becomes eligible for other group health coverage. The FAQs reiterate that an individual will no longer be eligible for the COBRA subsidy once he becomes eligible for Medicare or other group health coverage, such as through a new employer’s or a spouse’s plan. An individual would not lose the subsidy, however, if the other coverage is a dental- or vision-only plan, a qualified small employer health reimbursement arrangement, or simply a health flexible spending arrangement. For instance, if a covered employee’s adult daughter became eligible for COBRA by virtue of the employee’s involuntary termination, she may not be an AEI if she is eligible for her own employer’s plan. That said, the FAQs make clear that an individual could still qualify for the COBRA subsidy and the second opportunity to elect if he has coverage through the Health Insurance Marketplace or Medicaid.
- If an AEI is eligible for the COBRA subsidy through the end of the subsidy period (e., September 30, 2021), then he will have to pay premiums for subsequent months to retain coverage. This seems like an obvious point, but if an AEI elects COBRA and the subsidy, once the subsidy period ends, he must pay the applicable COBRA premiums if he wants coverage thereafter (assuming of course that the AEI’s maximum coverage period does continue past September 30th).
- The FAQ clarifies that a potential AEI must elect COBRA within 60 days of receipt of the “relevant notice,” or else he will forfeit his rights to receive COBRA with the subsidy. “Relevant notice” would seemingly include the first 3 model notices mentioned below.
- The agencies’ COVID-19 extension guidance, which we discussed in the prior bulletin, does not apply to the deadlines for employers to provide ARPA COBRA subsidy notices described above or an AEI’s 60-day subsidy election deadline. Earlier in the pandemic, the IRS and DOL issued guidance which provided that the duration of the “outbreak period” (e., March 1, 2020 through 60 days after the end of the national emergency) should be disregarded in determining whether any COBRA deadlines are met (e.g., premium payments, deadline to send COBRA notices, deadline to elect COBRA). As the pandemic reached the one-year mark, the agencies clarified that the original COVID-19 extension through the outbreak period could not extend any deadlines for more than one year from the date an individual was first eligible for relief. So, if a qualified beneficiary’s COBRA election would have been due on March 1, 2020, the deadline could only be extended through February 28, 2021, even though the outbreak period technically has not yet ended. The new ARPA FAQs provide that the COVID-19 extension does not apply to the ARPA COBRA subsidy deadlines. For instance, if an AEI receives a second opportunity to elect notice on April 20, 2021, then he will only have 60 days, or until June 19, 2021, to elect COBRA and benefit from the subsidy, even if the outbreak period is ongoing. That is, the AEI will cease to be eligible for the subsidy if he does not meet the 60-day deadline. Although the AEI would no longer be entitled to the subsidy, the new FAQs state that he could still benefit from COVID-19 extension and elect COBRA after the 60 days are up, through the outbreak period. However, he would have to pay for any COBRA coverage, including the coverage that would have been free with the subsidy.
Use of the model notices is voluntary. Employers should review their current COBRA election notices in light of the new ARPA COBRA subsidy and consider incorporating language from the model notices or tailoring the model notices detailed below to their needs.
- For qualifying events occurring between April 1, 2021 and September 30, 2021, use this model notice, and attach the DOL’s “Summary of the COBRA Premium Assistance Provisions under the American Rescue Plan Act of 2021.” Please note that this notice seemingly is not limited to AEIs, or those qualified beneficiaries who are eligible for federal COBRA by virtue of a reduction in an employee’s hours or his involuntary termination. Instead, it can be sent to all qualified beneficiaries during the subsidy period. This notice is due within the ordinary 44-day timeframe for providing COBRA election notices (e., within 44 days of the qualifying event).
- For qualifying events which occurred before April 1, 2021, use this model notice, and attach the DOL’s “Summary of the COBRA Premium Assistance Provisions under the American Rescue Plan Act of 2021.” This notice should be sent to those qualified beneficiaries currently enrolled in COBRA due to a reduction in hours or involuntary termination and to AEIs entitled to a second opportunity to elect. Please note that this notice must be provided to those individuals by May 31, 2021.
- For state continuation coverage qualifying events which take place between April 1, 2021 and September 30, 2021, use this model notice, and attach the DOL’s “Summary of the COBRA Premium Assistance Provisions under the American Rescue Plan Act of 2021.”
- For any AEI that elects and receives the subsidy, send this model notice to the AEI at least 15 before but no greater than 45 days before his COBRA subsidy expires.
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Because legal developments pertaining to COVID-19 are constantly evolving, we recommend that our clients call the Kullman Firm attorney(s) with whom they work for the most current guidance on these matters.