American Rescue Plan Act Includes 100% COBRA Subsidy
Yesterday, President Biden signed the American Rescue Plan Act of 2021 (“ARPA”) into law. In addition to other provisions impacting employee benefit plans, the ARPA includes a 100% COBRA premium subsidy for up to 6 months for certain individuals and their families who lost coverage due to an involuntary termination or reduction of hours. Private and state/local government employers are responsible for complying with the COBRA subsidy provisions. Insurance companies are responsible for complying with the COBRA subsidy provisions for insured group health plans that are not subject to federal COBRA.
While there are lingering questions, we want to make you aware of this new subsidy. ProBenefits is analyzing the new law, including the administrative changes and new COBRA notifications that will be necessary to assist our COBRA employer clients in complying with the COBRA subsidy requirements. The ARPA calls on the agencies to promptly issue model notices and any additional regulations/guidance needed to implement the COBRA subsidy. Therefore, more information will likely be forthcoming from the agencies in the coming days.
ProBenefits will keep you up to date with the latest information, including updates/changes to our COBRA administration and COBRA notices/communications. In the meantime, you can contact your Account Manager or our Compliance Team if you have any questions. We are here to help you navigate this COBRA subsidy.
100% Subsidy for a Maximum Period of Six Months (April 1, 2021 – September 30, 2021)
Under the ARPA, certain individuals and their families who lost coverage due to the individual’s involuntary termination or reduction of hours are eligible for a 100% COBRA premium subsidy for coverage other than a Health FSA. The subsidy period is a maximum of 6 months beginning April 1, 2021 and ending September 30, 2021. The applicable COBRA premium during the COBRA subsidy period is paid 100% by the employer (private employers as well as state/local government employers) who will receive reimbursement for such payment from the federal government through a payroll tax credit. For insured group plans not subject to federal COBRA (e.g., when state mini-COBRA requirements apply to exempt small employer plans or to large group plans after federal COBRA is exhausted), the insurance carrier is responsible for complying with the COBRA subsidy provisions.
If a subsidy eligible individual reaches the end of their maximum period of COBRA coverage prior to the end of the COBRA subsidy, the subsidy period is shortened (the COBRA subsidy does not expand the maximum COBRA coverage period). Additionally, an individual who becomes eligible for other group health plan coverage or Medicare will lose eligibility for the COBRA premium subsidy. Individuals are required to provide notification if they become eligible for other group health plan coverage or Medicare. A financial penalty applies to individuals who fail to provide notification of eligibility for other group health coverage or Medicare.
Who is Eligible? Assistance Eligible Individuals (“AEI”) and Extended Election Rights
The COBRA premium subsidy is available to assistance eligible individuals (“AEIs”) for the period April 1, 2021 to September 30, 2021. An AEI is defined as a qualified beneficiary who (1) is eligible for COBRA due to a qualifying event of involuntary termination or reduction of hours and (2) elects COBRA for a period of coverage that falls within the subsidy period.
Certain individuals not currently on COBRA may have extended COBRA election rights (“a second bite at the apple”) and be will be able to take advantage of the subsidy effective April 1, 2021. The following individuals have a 60-day extended COBRA election right (beginning April 1, 2021 and ending 60 days after they are notified of the extended election right):
- Individuals who do not have an election of COBRA in place on April 1, 2021, but would be an assistance eligible individual (i.e., involuntary termination or reduction of hours) if they had elected COBRA; and
- Individual who elected COBRA and discontinued such coverage before April 1, 2021, but would otherwise be an AEI (i.e., involuntary termination or reduction of hours) and are still within their maximum COBRA coverage period.
Individuals electing COBRA during the 60-day extended election period are making prospective elections with coverage beginning April 1, 2021 (not retroactive to the original loss of coverage) and the individual’s maximum COBRA coverage period is not extended.
Voluntary Plan Enrollment Option
Employers may allow AEIs to elect a different coverage option than the plan in which they were enrolled. If the employer decides to allow this coverage option, notice to the AEI is required and the AEI has 90 days after the notice to make a change. The premium for the different coverage option cannot exceed the premium for the AEI’s existing coverage. The different coverage option must also be offered to active employees and cannot consist of only excepted benefits, a Health FSA, or a QSEHRA.
Required Subsidy Notices
There are several required notices in connection with the COBRA subsidy:
- Notice of Subsidy Availability. AEIs who become entitled to elect COBRA during the subsidy period must be notified about the availability of the subsidy and the option to enroll in different coverage (if allowed by the employer). This notice requirement can be met by amending existing COBRA notices or including a separate document with the required COBRA notice;
- Notice of Extended Election Period. Individuals who are entitled to the extended COBRA election period must be notified of the extended election period within 60 days of April 1, 2021 (May 30, 2021); and
- Notice of Subsidy Expiration. AEIs must be notified about the expiration of the COBRA subsidy (unless expiration is due to eligibility for other group health plan coverage or Medicare). The notice must be provided between 45 and 15 days before the expiration of the subsidy.
The ARPA includes specific content requirements for the notices and directs the DOL to issue model notices no later than 30 days after the date of enactment (45 days for the model expiration notice). We will continue to keep you updated as model notices and additional guidance are released.