American Recovery Plan (ARP) Act COBRA Subsidy Information for Partners

We will add to this post as we have new information about the ARP COBRA subsidy.

Current status as of 5/4/21:
The IRS has released a draft Form 7200 which will be used by employers to claim the tax credit for subsidy payments. The form is not final yet and this draft cannot be used by employers. Once the form is formally approved, it will be posted for use by employers. We will notify our partners as soon as the final form and instructions for claiming the subsidy have been posted by the IRS.

4/29/21:
Earlier this week, we emailed all our COBRA employer clients with lists of their COBRA Qualified Beneficiaries (QBs) that we have identified as potentially eligible for the ARP COBRA subsidy, and instructions for making the required updates in the ProBenefits COBRA portal. These updates must be completed by Friday, May 7th, 2021, to ensure that required notices may be postmarked by the deadline of May 31st, 2021. And today (4/29) we held a webinar covering the compliance aspects of the subsidy as well as how employers will need to make updates on the portal. See link in Useful Resources below to watch the replay. At this point we are still expecting further guidance from the IRS on claiming the employer tax credit.

4/21/21:
The DOL has jurisdiction over reporting and disclosure requirements related to COBRA and recently issued FAQs and model notices under this authority. The FAQs are primarily aimed at informing individuals but contain some helpful information for employers as well. Many unanswered questions remain that need to be addressed by the IRS, which has jurisdiction over all other COBRA issues. We are expecting additional guidance and clarification from the IRS and are finalizing the updates to our software platform to accommodate these changes. We will continue to keep you updated on the latest guidance and administrative developments.

Useful resources:
DOL dedicated subsidy website – This site currently includes sections for workers and families, and for employers and advisors; and includes the DOL’s FAQs and model notices.
ProBenefits blog post: ARPA COBRA Subsidy Update 4/7/21
ProBenefits Webinar: ARP COBRA Subsidy (4/29/21) / Slides

Frequently Asked Questions – ARP COBRA Subsidy 

Q: Is it ARP or ARPA?
A: Good question! While the initial consensus in the industry was ARPA (American Recovery Plan Act), it appears that the DOL is now going with the acronym ARP instead. So, when you see reference to the ARPA COBRA subsidy or the ARP COBRA subsidy, they’re the same thing. Here at ProBenefits, we’re moving toward using ARP, but you may still see earlier information that references ARPA.

Q: When will ProBenefits have a webinar on the subsidy?
A: We had originally planned a webinar for April 21st, but we were anticipating additional guidance from the DOL and IRS and wanted to wait until we had more information to share. We held a webinar on Thursday, April 29th at 11 am Eastern time. Watch now

Q: How will ProBenefits know who is eligible for the subsidy?
A: The ARP defines Assistance Eligible Individuals (AEIs) as COBRA qualified beneficiaries who meet the below criteria:
  1. Coverage was lost due to reduction of hours (whether voluntary or involuntary) or involuntary termination of employment; and
  2. The COBRA qualified beneficiary is within his/her maximum COBRA continuation period as of April 1, 2021, or becomes eligible for COBRA continuation between April 1, 2021 and September 30, 2021; and
  3. The COBRA qualified beneficiary is not eligible for Medicare or coverage under another group health plan (including a spouse’s plan).
Because the information needed to ascertain point #1 above was not previously required when reporting COBRA events, employers will need to identify individuals associated with their plans who are AEIs. As soon as our software updates are completed, we will provide you with instructions on how the identification process will work. We plan to provide employers with a report of all qualified beneficiaries in our system to assist with this process. If your ProBenefits COBRA administration started after October 1, 2019, AEIs may be missing from our data. Therefore, you will need to gather this information internally or from your prior COBRA TPA.

Q: How will AEIs be affected by the subsidy?
A: AEIs will be able to take advantage of the subsidy in one of the following ways, depending on their status:
  • Eligible COBRA participants who have an election in place as of April 1, 2021 will be able to take advantage of the subsidy effective April 1, 2021.
  • Eligible COBRA qualified beneficiaries who do not have an election in place will have the opportunity to make an election during an Extended Election Period and will be able to take advantage of the subsidy effective April 1, 2021.
  • Eligible COBRA qualified beneficiaries who become eligible for COBRA continuation coverage on or after April 1, 2021 will be eligible for the subsidy while it is in effect.

Q: Will ProBenefits be sending the new required notices? Will there be any additional charge for this service?
A: Yes, we will send all new notices required by the ARP; and no, there will be no additional charge.

Q: Shouldn’t the new notices already be going out to individuals?
A: The deadline to send required notices is May 31, 2021. We will make sure your plan meets the subsidy notice deadlines. This is a big change to COBRA and involves significant changes to administration processes across multiple industries: third-party COBRA administrators like ProBenefits, employers, insurance carriers, and even the IRS.

Q: Does the extension of COBRA deadlines due to the COVID-19 national emergency (Notice 2021-01) apply to the COBRA subsidy deadlines?
A: The DOL clarified in its FAQs that the extension of certain COBRA deadlines due to the COVID-19 national emergency does not apply to the 60-day window for AEIs to elect subsidized COBRA coverage.

Q: How long is the subsidy in effect, and what plans are covered?
A: The ARP subsidy period is 6 months, from April 1 to September 30, 2021. The subsidy is available for all group health plans, including dental and vision. The subsidy is not available for Health FSAs.

Q: How will the subsidy work? As an employer, do I still have to pay the insurance company? How will we get reimbursed?
A: AEIs are eligible for a 100% COBRA premium subsidy during the 6-month subsidy period. The 100% subsidy is based on a COBRA premium that includes the 2% administrative fee that is permitted under COBRA. Employers subject to federal COBRA will pay the premium for the subsidy-eligible federal COBRA participants’ premiums and then will be “reimbursed” through the application of a tax credit against their Medicare payroll taxes.

Q: It’s already April, and the subsidy was effective April 1. What about COBRA participants who have already paid their premiums and are found to be eligible for the subsidy?
A: The ARP requires that AEIs who pay premiums during the subsidy period be reimbursed no later than 60 days after the date the individual made payment. The tax credit is available to employers for premiums reimbursed to AEIs. Once subsidy-eligible individuals have been identified, COBRA participants who have paid premiums during the subsidy period will be reimbursed as necessary.

Q: What is the “lookback period” and which of these QBs will receive the required notices?
A: COBRA Qualified Beneficiaries (QBs) whose 18-month eligibility period for COBRA continuation coverage began between November 1, 2019 and March 31, 2021 are considered to be in the “lookback period.” The legislation only requires that Assistance Eligible Individuals (AEIs) who fall into this category be notified about their subsidy eligibility, rather than all QBs. To that end, QBs who are marked in the ProBenefits COBRA portal with an AEI Status of Eligible by May 7th will be sent the new ARP required notices by May 31st, along with an eligibility attestation form. QBs with qualifying events during the lookback period who are marked with an AEI Status of Ineligible or Unknown will NOT be sent the new notices.

Q: What are the requirements for QBs with Qualifying Events 4/1/21 – 9/30/21?
A: The legislation requires that ALL QBs with qualifying events of any type who become eligible for COBRA continuation coverage between April 1, 2021 and September 30, 2021 be sent the ARP required notices. QBs who became COBRA-eligible as of April 1 and after who have already received the standard COBRA notices will be sent the new required notices as a separate mailing, and once the required notices begin going out mid-May, new QBs will receive them as part of their COBRA specific rights packages.

Q: How do QBs begin subsidized coverage?
A: In order to begin subsidy coverage, an individual must either be a current COBRA participant or elect new COBRA coverage, and complete and return the eligibility attestation form to certify that they are not eligible for Medicare or coverage under another group health plan (including a spouse’s plan). Those not currently enrolled in COBRA will have 60 days from the date of the notice to elect. Once the individual has a COBRA election and we receive the attestation form, we will verify with the employer that coverage was lost due to either reduction of hours or involuntary termination of employment, and if so, the subsidy will begin (retroactive to April 1 or the beginning of their COBRA eligibility, whichever is later). If the individual’s qualifying event was during the lookback period and the employer has marked them as Eligible in the ProBenefits COBRA portal, we will count that as verification. Going forward, for individuals who become COBRA-eligible between April 1 – September 30, 2021, employers may mark them as Eligible or Ineligible in the portal, or we will contact employers directly for verification as needed when elections and attestations are received.

Unanswered Questions as of 4/21/21 – IRS Guidance Needed 

Many questions regarding the implementation and administration of the subsidy remain unanswered and require guidance from the IRS. Here are a few of the unanswered questions/issues we’ve identified:
  • What is considered an “involuntary” termination of employment? While many circumstances will be clear to employers, there are certainly some gray areas, such as mutual separations.
  • What is the impact of severance agreements (or other COBRA subsidy agreements employers have entered with individuals) on the ARP subsidy/tax credit?
  • What are the specific details and instructions for employers claiming the tax credit?
  • What does it mean to be “eligible” for other group health plan coverage? What if an individual is eligible, but didn’t enroll at open enrollment and can’t now join the plan mid-year?
  • What is the effect of a reduction of hours or involuntary termination qualifying event before April 1, 2021, followed by a disability or a second qualifying event extension of COBRA coverage that extends coverage into the subsidy period?
  • Is there an appeals process if the employer and individual disagree as to AEI status?

We will continue to keep you informed as additional guidance is issued by the DOL or IRS.