Employees who’ve lost employer-sponsored group healthcare coverage (and whose job loss qualifies them coverage under pre-existing rules) have received a COBRA lifeline from the American Rescue Plan Act of 2021 (ARPA).
The ARPA includes a subsidy that covers 100% of an employee’s health insurance premium for up to six months for these employees. ARPA also provides a “second chance” election for those who did not initially elect to extend healthcare coverage under COBRA or who let their COBRA coverage lapse.
Much like the COBRA subsidy passed in the 2009 American Recovery and Reinvestment Act (ARRA), employers can take advantage of this subsidy as a refundable tax credit. Similar notification and record-keeping requirements exist before employers can receive it. (If you rely on a COBRA administrator, confirm they will send the new required notices and provide you with the information you need to claim the payroll tax credit.)
Reviewing the Basics: COBRA Coverage
Most private-sector employers must offer COBRA health care continuation coverage if they sponsor a group health plan and had at least 20 full- or part-time employees during the previous year.
Normally, employers can require terminated workers who choose to keep their employer-sponsored health plan—generally for up to 18 months—to pay for COBRA coverage. Alternatively, employers could choose to cover that cost. During the pandemic, some employers did just that for employees who were laid off, furloughed or had their hours reduced.
COBRA can be extended for up to 29 months for people with disabilities. This increases to 36 months if there’s a second qualifying event during the initial continuation coverage period (such as the divorce or separation of the employee and spouse). Some states impose their own COBRA coverage requirements in certain circumstances.
How the ARPA Helps
Typically, COBRA insurance premiums are limited to the full cost of the coverage plus a 2% administration charge. That cost, however, is not affordable for many newly unemployed workers.
The new ARPA COBRA subsidy pays the entire premium and the administrative cost. This far more attractive option is a step up from the 2009 aid package, which only covered 65% of the premium. Full coverage of premiums and administrative costs make employees who elected not to enroll more likely to do so now.
The latest also improves on the 2009 measure because the framework for businesses is already established. Additionally, unlike the 2009 COBRA subsidy, the ARPA version has no income cap. That effectively expands the number of assistance eligible individuals (AEIs)
Prioritize Communication With AEIs
The COBRA subsidy maintains strict communication rules before any employer will qualify to receive the subsidy. First, employers should determine which employees or their qualifying beneficiaries lost health plan coverage within the past 18 months (on or after Nov. 1, 2019) because of an involuntary termination of employment or reduction in hours.
Next, send a notice to each of these employees (and their covered family members) within 60 days. The Department of Labor has been tasked with issuing model notices by May 10. There will likely be at least three types of notice models available:
- A full General Notice for all qualified beneficiaries (not just covered employees)
- An abbreviated General Notice for all qualified beneficiaries
- An Alternative Notice for individuals who qualify for COBRA under state (but not federal) continuation laws
- A Notice in Connection with Extended Periods to inform those who chose to decline or drop COBRA but may still qualify to receive it under the subsidy
Once you have this data, inform employees and their qualifying beneficiaries who currently have COBRA coverage that they will be eligible for a 100% subsidy of their premiums through Sept. 30, 2021. The employer or insurer will offset the cost by claiming a credit against Medicare payroll taxes.
Any employer or insurer who wants the subsidy should maintain accurate records that verify compliance with COBRA laws.
Non-Elects and Those With Lapsed Coverage
Your business should also inform employees who fit the qualification criteria after Nov. 1, 2019—but who did not elect COBRA or let it lapse—they will have until 60 days after receipt of the notice to elect COBRA. Any election for these participants would be prospective only and not retroactive to the date coverage was lost. It is unclear whether these election deadlines will supersede the previous Department of Labor extension for COBRA elections.
Important: Inform eligible employees that the ARPA subsidy does not extend COBRA coverage. As per pre-existing rules, COBRA coverage will still expire 18 months after coverage was lost, even in the middle of the subsidy period. Assuming rules stay the same after they are clarified by further legislation, coverage can be extended for a second qualifying event (up to a total of 36 months). However, it is unclear if the subsidy could apply during that period.
Pre-Existing COBRA Qualification Rules Still Apply
As you notify employees and their dependents about the new COBRA subsidy, you might want to provide information about limiting factors that influence their ability to qualify. The qualification rules for COBRA still apply, as do the disqualification rules. To that end:
- Any employee or family member who is or becomes eligible for other group health coverage or Medicare is not eligible for the subsidy. The individual has the obligation to notify the employer if he or she is not eligible or loses eligibility.
- Any employee who voluntarily quits does not qualify to receive COBRA.
The federal subsidy will not apply for former employees who receive COBRA coverage and should otherwise not have it. Careful and methodical administration should help avoid costly overpayment that won’t be compensated under the ARPA subsidy.
Additional Business Considerations for the 2021 COBRA Subsidy
The ARPA COBRA subsidy is a boon for businesses as well as employees and their beneficiaries. Congress appears to have made this subsidy easier to navigate versus the 2009 subsidy. However, there may be additional issues to consider before you begin and after you start sending notifications to your AEIs:
- The 2009 COBRA subsidy was originally scheduled to last for nine months and was later extended to 15 months. Be prepared for the ARPA COBRA subsidy to be extended if the economy does not recover quickly.
- This subsidy makes it more likely employees will elect COBRA for the subsidy period—potentially leading to higher claims. There may be an impact on your insurance or stop-loss insurance renewal.
Small and midsized businesses with limited internal resources may want to consult with an HR services team. They can help you manage the higher volume of COBRA enrollments likely to occur with the new ARPA subsidies.
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