Agencies Issue Additional Guidance on the 100% COBRA Subsidy
The American Rescue Plan Act of 2021 (the “Act”) enacted on March 11, 2021, provides for 100% premium assistance for COBRA continuation coverage1 for eligible individuals. On April 7, 2021, the Department of Labor published:
- Summary of COBRA Premium Assistance Provisions under the American Rescue Plan Act of 2021,
- COBRA Premium Assistance under the American Rescue Plan Act of 2021 FAQs (hereinafter the DOL FAQs), and
- Model notices to assist employers in implementation of the subsidy.
This Alert summarizes the rules and additional guidance for the COBRA subsidy and provides links to the model notices.
Action Needed Now: Plan sponsors are required to send the subsidy election notice to eligible individuals by May 31, 2021.
Background: Under federal and state COBRA laws that provide for the continuation of health coverage, group health plans are generally required to provide continuation coverage upon certain “qualifying events2.”
Key Provisions of the 100% COBRA Subsidy
- Applicable Plans: The subsidy applies to group health plans that are required to offer COBRA coverage pursuant to federal or state law.
- Eligible Individuals: The Act defines an “assistance eligible individual” as anyone (including dependents – See Q&A 16 of the DOL FAQs) during the period of April 1, 2021 through September 30, 2021 who
- is eligible for COBRA coverage by reason of an involuntary termination of employment or reduction in hours;
- is not eligible for coverage under
- another employer group health plan, or
- a qualified small employer health reimbursement arrangement; and
- elects COBRA coverage.
Note spouses becoming eligible due to divorce, children who age-out, and voluntary terminations are not eligible.
For purposes of the 100% subsidy, “reduction in hours” includes reduced hours due to change in a business’s hours of operations, a change from full-time to part-time status, taking of a temporary leave of absence, or an individual’s participation in a lawful labor strike, so long as the individual is an employee at the time that the hours are reduced. See Q&A 3 of the DOL FAQs.
Q&A 3 of the DOL FAQs clarifies that an individual who has individual health insurance coverage, like a plan through the Health Insurance Marketplace® or Medicaid, may be eligible for the 100% subsidy. However, any individual who elects COBRA coverage with the 100% subsidy will no longer be eligible for a premium tax credit, advance payments of the premium tax credit, or the health insurance tax credit for his or her health coverage during the subsidy period.
- Former Participants with No Current COBRA Election: The subsidy also applies to assistance eligible individuals even if they had not elected COBRA coverage, or they had elected COBRA coverage but discontinued COBRA coverage prior to April 1, 2021. These individuals will have until 60 days after receipt of the COBRA subsidy notice to elect coverage.
CHEIRON OBSERVATION: The furthest back for eligibility for the subsidy for an 18-month COBRA continuation period is continuation coverage that began November 1, 2019. For example, an individual who lost his or her job on October 31, 2019, would typically have been eligible for COBRA coverage for the 18-month period November 1, 2019, through April 30, 2021, and, thus, could receive the subsidy for month of April 2021. For an individual with a COBRA period extended to 29 months on account of disability, the earliest COBRA start date is December 1, 2018. Individuals do NOT have to pay for (nor enroll in) COBRA coverage for the period between their initial COBRA eligibility date and April 1, 2021.
- Duration of Subsidy: The 100% subsidy is available for COBRA coverage for up to six months during the period April 1, 2021, through September 30, 2021. The Act makes clear, however, that the subsidy does not extend the individual’s maximum COBRA continuation period (18 months or 29 months due to disability). As a result, eligible individuals who become eligible after April 1, 2021, or whose eligibility ends prior to September 30, 2021, will receive less than six months of subsidy. Eligible COBRA participants who want to continue COBRA coverage on or after October 1, 2021, will need to pay the regular COBRA premium charged by the plan. Alternatively, upon expiration of the subsidy the individual may be eligible for Medicaid, special enrollment in coverage through the Health Insurance Marketplace® or other individual market health insurance coverage. See Q&A 4 of the DOL FAQs.
Individuals can begin their coverage prospectively from the date of their election, or, if an individual has a qualifying event on or before April 1st, choose to start their coverage as of April 1st, even if the individual receives an election notice and makes such election at a later date. See Q&A 5 of the DOL FAQs.
- Election Period: Participants have 60 days after receipt of the notice to elect coverage.
- Plan Election Options: Assistance eligible individuals generally must enroll in the same medical, pharmacy, dental, or vision coverage that they had at the time of the involuntary termination or reduction in hours. Note the eligible individual must be offered the COBRA subsidy under group vision and dental benefits (whether the dental and vision coverage is offered along with their medical and pharmacy coverage or are provided under stand-alone plans) if they had vison and dental coverage as of the date of the qualifying event.
The individual may also choose to enroll in a different coverage during the subsidy period if all of the following apply:
- the plan permits such an election,
- the premium for the different coverage does not exceed the premium for coverage in which such individual was enrolled when involuntary termination/reduction in hours occurred,
- the different coverage is also offered to similarly-situated active employees, and
- the different coverage is not for excepted benefits (such as stand-alone dental or vision coverage), coverage under a qualified small employer health reimbursement arrangement, or a flexible spending account, and
- The participant election is made within 90 days of being notified of the option to change coverage.
Reimbursement for COBRA Premiums
The COBRA subsidy is provided through a credit against or refund for the payroll tax imposed by Code section 3111(b) (Hospital Insurance (HI)) and is given to the “person to whom premiums are payable for continuation coverage.”
Under new Code section 6432, as added by the Act, the “person to whom premiums are payable” for COBRA coverage is:
- the plan - in the case of any group health plan which is a multiemployer plan,
- the employer maintaining the plan - in the case of group health plan (other than a multiemployer plan) under which some or all of the coverage is self-insured, and
- the insurer - in the case of an insured group health plan not described above.
Employer includes both governmental entities and private sector employers which are not part of a multiemployer plan. If the COBRA subsidy exceeds the HI payroll taxes for the quarter or if the entity does not pay payroll taxes, a refund will be payable to the plan.
Q&A 9 of the DOL FAQs clarifies that the subsidy also covers the administration fee that would otherwise be charged by the plan for the COBRA coverage.
Neither the Act nor the DOL FAQs describe the procedure that plans, employers, and insurers are to use for premium reimbursement. We expect that the IRS will issue regulations or other guidance to further explain these processes.
Notices to Individuals
- Election Notice: For eligible individuals who became eligible to elect COBRA before April 1, 2021, the plan administrator must send the COBRA subsidy election notice by May 31, 2021. For individuals who become eligible for COBRA between April 1, 2021 and September 30, 2021, the plan administrator must include the COBRA subsidy election notice as an additional notice along with the standard COBRA election notice3. The notice of their rights to the COBRA coverage must be written in clear and understandable language and must include:
- a prominent description of the individual’s right to the subsidy and any conditions thereto,
- a description of the option to enroll in different coverage (if permitted),
- the forms necessary for electing the premium assistance,
- contact information for the plan administrator,
- a description of the extended election period, and
- the obligation of the individual to notify the plan if he or she gains coverage under another employer plan or Medicare.
Plan administrators are required to send subsidy notices to the last known address of the employee and the last known address of each other qualified beneficiary that does not reside with the employee.
- Notice of Subsidy Expiration: The plan administrator also must notify an individual at least 15 days (but not more than 45 days) before their subsidy will expire. The notice must state whether the individual may be eligible for continuation coverage under the plan without such subsidy. This notice requirement does not apply where the individual’s subsidy ends because he or she became eligible for coverage under another group health plan or Medicare.
CHEIRON OBSERVATION: The plan administrator will need to issue two separate notices, one at eligibility and another in advance of the subsidy expiration. Those individuals with one or two months of subsidy will likely receive both notices together.
- COVID-19 Extensions Do Not Apply: The extensions under the Joint Notice and EBSA Disaster Relief Notice 2021-01 due to the COVID-19 National Emergency do not apply to the notices or the election periods relating to the 100% COBRA subsidy. Therefore, plans and issuers must provide the notices and implement elections in accordance with the timeframes specified in the Act, as outlined above. See Q&A 10 of the DOL FAQs.
- Model Notices:The Secretaries of the DOL, Treasury, and HHS have issued the following model notices:
Model Alternative Notice: MS Word | PDF (for use by group health plans for qualified beneficiaries currently enrolled in COBRA continuation coverage, due to a reduction in hours or involuntary termination, as well as those who would currently be assistance eligible individuals if they had elected and/or maintained COBRA continuation coverage)
- Model Alternative Notice: MS Word| PDF (for use by insured coverage subject to state continuation requirements between April 1, 2021 and September 30, 2021)
- Model Notice of Expiration of Premium Assistance: MS Word| PDF (for use by group health plans to assistance eligible individuals 15-45 days before their premium assistance expires)
- Individual’s Duty to Notify Plan: Any individual receiving the COBRA subsidy must notify the group health plan if he or she becomes eligible for coverage under another employer’s group health plan or Medicare. Any person who fails to provide such notice will be required to pay a penalty of $250 per each failure. In the case of any such failure that is fraudulent, such person shall pay a penalty equal to the greater of $250 or 110% of the premium assistance provided after termination of eligibility. However, no penalty will apply if it is shown that such failure is due to reasonable cause and not to willful neglect.
Cheiron consultants can assist you with your compliance with the COBRA subsidy rules.
Cheiron is an actuarial consulting firm that provides actuarial and consulting advice. However, we are neither attorneys nor accountants. Accordingly, we do not provide legal services or tax advice.
1For purposes of the subsidy, the Act defines “COBRA continuation coverage” as continuation coverage provided pursuant to: (i) ERISA (part 6 of s\subtitle B of title I, other than under medical child support orders); (ii) title XXII of the Public Health Service Act; (iii) Code section 4980B (other than subsection (f)(1) of such section insofar as it relates to pediatric vaccines), or (iv) a State program that provides comparable continuation coverage. Such term does not include coverage under a health flexible spending arrangement under a cafeteria plan within the meaning of section 125 of the Internal Revenue Code of 1986. For purposes of this alert, we refer to the coverage as “COBRA coverage.”
2The qualifying events are: (i) the death of the covered employee; (ii) a covered employee's termination of employment or reduction of the hours of employment; (iii) the covered employee becoming entitled to Medicare; (iv) divorce or legal separation from the covered employee; or (v) a dependent child ceasing to be a dependent under the generally applicable requirements of the plan.
3Note, for plans subject to COBRA, other than multiemployer plans, an employer is required to notify its group health plan administrator within 30 days after an employee’s employment is terminated, or employment hours are reduced. Within 14 days of that notification, the plan administrator is required to notify the individual of his or her COBRA rights. If the employer also is the plan administrator and issues COBRA notices directly, the employer has the entire 44-day period in which to issue a COBRA election notice. A multiemployer plan may use the timeframes above or adopt its own uniform time limits for providing the COBRA qualifying event notice or the election notice. Any special multiemployer plan rules must be set forth in the plan document and summary plan description. See § 2590.606–4(b)(3).