AMERICAN RESCUE PLAN ACT OF 2021
MANDATORY COBRA PREMIUM ASSISTANCE
Urgent Plan Sponsor Action Required
April 27, 2021
On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 (the “Act”), which is a $1.9 trillion legislative package that includes pandemic relief for individuals and families. The Act implements a mandatory 100% COBRA premium subsidy for individuals who have lost group health plan coverage due to the involuntary termination of employment or reduction in hours. Spouses and dependents who are qualified beneficiaries at the time of the loss of health coverage are also eligible for the subsidy. Employers are entitled to a tax credit under the Act in order to fund the costs.
Plan sponsors are required to permit a 60-day election period to allow subsidy eligible individuals enroll and are also required to issue several notices in connection with the COBRA subsidy. The Department of Labor (DOL), the Department of Health and Human Services and the Department of Treasury (collectively the “Agencies”) have issued model notices which reflect the prescribed deadlines. Plan sponsors are encouraged to coordinate with their service providers to allocate compliance responsibility.
The “assistance eligible individuals” who are eligible for COBRA assistance (“AEIs”) include those who are or become COBRA qualified beneficiaries as a result of an involuntary termination or reduction in hours and satisfy one of the following conditions:
Individuals who “voluntarily” terminate their employment are not eligible for the subsidy, with the term “voluntarily” being undefined in the Act. We await receipt of additional guidance in this regard. An employer may choose to offer the AEIs COBRA under a plan that is not the same plan under which the individual originally had group health coverage.
- the individual was previously eligible for COBRA continuation coverage, but did not elect COBRA and have coverage that would have extended into the subsidy period;
- the individual was previously eligible for COBRA continuation coverage, elected, but dropped, coverage, and have coverage that would have extended into the subsidy period; or
- the individual is or becomes eligible for COBRA during the subsidy period.
Extended Election Period
An AEI must be given a new 60-day COBRA election period in which to make a COBRA election, which begins on April 1, 2021, and ending 60 days after they are given the required notification of the extended election period. As a result, individuals who had not previously elected COBRA continuation and those who had coverage, but dropped coverage and are still eligible are entitled to a new (or additional) COBRA election period. EBSA Disaster Relief Notice 2021-01 (“Joint Notice”) clarifies that individuals and group health plans with time frames that are subject to the relief will have the applicable periods disregarded until the earlier of: (1) one year from the date they were first eligible for relief, or (2) 60 days after the announced end of the National Emergency (i.e., the end of the Outbreak Period). Therefore, if a qualified beneficiary would have been required to make a COBRA election by May 1, 2020, for example, the Joint Notice delays that requirement until May 1, 2021, which is the earlier of 1 year from March 1, 2020 or the end of the Outbreak Period (which remains ongoing). Identifying the eligible individuals may prove to be administratively onerous, which is why immediate attention to addressing the subsidy is encouraged.
Duration of COBRA Subsidy
The COBRA subsidy begins on April 1, 2021, and will end on September 30, 2021 (“subsidy period”). However, the subsidy period will end prior to September 30, 2021, if the individual loses eligibility for continuation coverage under the normal COBRA rules. AEI’s are deemed as paying for the cost of COBRA coverage during the relief period, with any payments made by an AEI during the relief period subject to reimbursement by the plan within 60 days of receipt of the payment. The COBRA subsidy ends on the earlier of:
COBRA Subsidy Notices
- the first date that the individual is eligible for benefits under a group health plan or Medicare;
the date following the expiration of the applicable maximum COBRA coverage period due to the qualifying event; or
the end of the COBRA period that would have applied had the coverage been elected.
The Act requires that AEIs receive notification of the subsidy availability as well as information regarding the extended election period and a notice informing the AEI when the subsidy will terminate.
Notice of Availability
Group health plans are required to provide a general COBRA notice that includes information about the availability of the COBRA subsidy, which can be accomplished by the modification of existing notices to include the subsidy availability language or by the issuance of separate subsidy notice. In the event a plan sponsor would like to modify an existing COBRA notice to include the subsidy information, instead of the model form, the following additional language must be included:
Notice of Extended Election Period
- The name, address, and telephone number of the plan administrator and any other entity maintaining relevant information in connection with the subsidy (e.g., COBRA administrator)
- A description of the additional election period
- A description of the individual’s responsibility to notify the plan of eligibility for other group health plan coverage or Medicare, including information about the penalty for failure to do so
- A prominently displayed description of the individual’s right to the COBRA subsidy
- If the employer has decided to permit medical plan option changes, a description of the available option(s)
A new COBRA election notice must be sent to individuals who are eligible for the new 60-day election period – i.e., individuals who were eligible previously but did not elect and those who elected but discontinued COBRA coverage.
Notice of Subsidy Expiration
No more than 45 days and no less than 15 days before the subsidy expiration date, the Act requires that individuals be advised regarding termination of the subsidy prior to September 30, 2021. This notice is not required for COBRA participants who are no longer eligible for COBRA because they obtained coverage under other group health plans/Medicare or they exhausted their COBRA coverage maximum period, e.g., 18 months. The notice must prominently include the date of subsidy expiration and a statement that the qualified beneficiary may be eligible for continued coverage without the COBRA subsidy.
Appeal of Subsidy Denial
If a group health plan determines that an individual is not eligible for the subsidy, but the individual disagrees, an expedited appeal process will be available. Under the expedited appeals process, the Secretaries of the Departments will make a determination within 15 business days after receipt of the appeal request.
Employer Tax Credit for COBRA Subsidy
Employers sponsoring group health plans may be reimbursed for the 100% COBRA premium subsidy via credits against certain payroll taxes. The tax credit is available to private employers and non-federal governmental employers subject to COBRA. Additional rules governing the coordination of this credit with credits under the Families First Coronavirus Response Act will apply (e.g., no double counting). The Secretary of the Treasury is directed to provide forms and instructions for employers and group health plans and to provide additional guidance for multiemployer plans and professional employer organizations.
We recommend that plan sponsors immediately identify individuals eligible for the subsidy so that the notifications can be provided. Further, its important to coordinate with services providers in order to allocate responsibility for performing the notification obligations. At this point, there are more questions than answers. However, we will provide updates as additional information is provided.
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