In an article recently published in the National Law Review, it was announced that individuals who are eligible for subsidy premiums under the Consolidated Omnibus Budget Reconciliation Act (COBRA) for the six months from April 1, 2021 through September 30, 2021 will be provided with a 100% subsidy as directed by the American Rescue Plan Act (ARPA) which was passed on March 11, 2021. The ‘assistance-eligible’ individuals who have lost coverage resulting from a reduction in their hours or because of an involuntary termination of their employment based on specific qualifying events (remember, this applies only in cases of involuntary terminations) will be considered eligible for a full subsidy of their COBRA premium. Additionally, a second election period provides individuals who were terminated, or had their hours reduced, to be eligible for the subsidy retroactive to 2019. 

What should employees know about extending COBRA election and premium payment deadlines?

  • The U.S. Department of Labor (DOL) and Internal Revenue Service (IRS) have extended COBRA election and premium payment deadlines and other benefit plan administration deadlines, for up to one year on a case-by-case basis.
  • Former employees who had COBRA coverage in effect on April 1, 2021 will be deemed to have paid their premiums in full, from April 1, 2021, until September 30, 2021.
  • Former employees, or those who experienced a reduction in hours, who had not elected COBRA, will have 60 days following the publication of a new COBRA notice to elect to receive the subsidized coverage.
  • Former employees, or those who had elected but then stopped paying premiums, will also have 60 days following issuance of a new COBRA notice to elect to receive the subsidized coverage.
  • The ARPA also permits employers to give assistance-eligible individuals 90 days to switch to another coverage option that is no more expensive than their previous option.

Clear and timely communication with employees is key

The American Rescue Plan Act goes to great lengths to introduce substantial changes to the requirements that COBRA must adhere to regarding notifying employees of any changes. Going forward, the emphasis is on alerting and educating the employees to ensure that:

  • An ‘assistance eligible’ individual whose involuntary termination or reduction of hours occurs before April 1, 2021, must be provided with additional information, beyond what would have been in his or her original COBRA election notice, by May 31, 2021.
  • A prominent description of the new subsidy and an explanation of the second election period is provided.
  • An assistance-eligible individual who becomes eligible to elect COBRA on or after April 1, 2021, is provided with all relevant information.
  • No expiration notice is required when subsidy eligibility ends due to the individual’s eligibility for other coverage.
  • Individuals who receive the subsidy must be alerted between 45 and 15 days before it expires, and the notice must state the expiration date.
  • Every employee must be made aware that he or she could be eligible for continued (but unsubsidized) COBRA coverage, or for other unsubsidized group health plan coverage.

ARPA offers guidance for employers

Under the Act, employers are instructed to treat ‘assistance eligible’ employees as if they have paid their premiums in full. But ARPA also establishes a process for compensating employers. They will recover the missing premiums by applying for Medicare tax credits to offset the loss.  

  • The credit is refundable so that employers will be eligible for the full value of the credit, even if their Medicare tax obligation is less than the value of the credit, and
  • The payroll tax credit will be advanceable.

Along with the potential benefits to employers, there are two limitations that have been put in place by ARPA:

  • Employers will not be able to claim the COBRA premium credit on amounts for which employee retention credits or Families First Coronavirus Relief Act credits have already been obtained.
  • The statute of limitations for assessments on these credits is extended to five years from the traditional three years.

We anticipate that there will be further clarification offered in the coming weeks and months and we will continue to keep you updated as new information is released.


Citation

Much of the information here is based on an article published in The National Law Review (http://www.natlawreview.com) entitled, “New COVID-19 Relief Law Includes Full COBRA Premium Subsidy Article,” authored by Timothy J. Stanton Michael K. Mahoney Kristine M. Bingman Hillary M. Sizer.