Julie A. Aquino, Esq., Campbell Durrant, P.C. | April 2021
The 2021 American Rescue Plan Act includes important new COBRA subsidies, effective April 1 through September 30, 2021. Compliance with the new program is mandatory and it applies broadly to almost all employers and health plans. The COBRA subsidy program is mandatory for any group health plan sponsored by an employer, union, or state or local government that is subject to COBRA, and to those enrolled in group health insurance under state mini-COBRA laws.
For employees involuntarily terminated and eligible for COBRA, the terminated employee is not responsible for the monthly COBRA continuation premiums during the six-month subsidy period, April 1 through September 30, 2021. Therefore, qualifying terminated employees will be eligible for cost-free COBRA continuation health care coverage during this temporary period. The temporary subsidy also applies to employees who lose health coverage due to an involuntary reduction in hours. Perhaps most noteworthy for compliance purposes, employees involuntarily separated prior to April 2021 who are still within their maximum coverage period (usually eighteen months) also are eligible for this COBRA subsidy.
Terminated employees eligible for this subsidy are referred to as “Assistance Eligible Individuals.” The subsidy is not available for employees who voluntarily resign or who were terminated for “gross misconduct.” Assistance Eligible Individuals must elect COBRA continuation coverage to be eligible for the subsidy, and it is not available for those who become eligible for health coverage from another source, such as a new employer, a spouse, or Medicare. The subsidy is also not available for those who qualify for COBRA coverage for reasons other than involuntary termination or reduction in hours, such as a divorce.
Understanding the subsidy period is key to compliance. The subsidy is available to qualifying individuals who are currently enrolled in COBRA continuation coverage and those who become eligible over the next six months. Furthermore, qualified individuals separated prior to April 1, 2021 who are still within their COBRA coverage period are eligible for the subsidy even if they had turned down or discontinued COBRA coverage before the subsidy was available. Compliance with the program is mandatory, as it is not a voluntary program on the part of the employer.
This mandatory subsidy program for those who have lost employment or work hours is not designed to be an unfunded mandate. Employers are eligible for a refundable tax credit against payroll taxes equal to the amount paid by the employer under the program. In the event a qualified Assistance Eligible Individual inadvertently pays a covered COBRA premium during the six-month subsidy period, the employer or plan must reimburse any premiums inadvertently paid by the individual.
Another compliance mandate involves mandatory notices. By May 31, 2021, employers, or the applicable health plan, must notify Assistance Eligible Individuals that they may be entitled to premium-assisted COBRA coverage. This includes individuals who may have declined or dropped COBRA coverage but are still within their maximum coverage period. Employers are also responsible under the program for notifying Assistance Eligible Individuals when the COBRA premium assistance period is ending. There also is a general notice requirement to all qualified beneficiaries who have a qualifying event that is a reduction in hours or an involuntary termination from April 1 through September 30, 2021. The general notice may be provided separately or with the COBRA election notice following a COBRA qualifying event. U.S. Department of Labor model notices, as well as related FAQs, are posted on-line.
To ensure compliance, employers should review their records of any employee or former employee who became eligible for COBRA coverage since April 1, 2018, and make sure that those who potentially qualify for the American Rescue Plan Act subsidy are notified. The reason for the thirty-six month look back period is that although the maximum COBRA coverage period is usually eighteen months, it can be extended in scenarios involving Social Security Disability (twenty-nine months) and in scenarios involving a second qualifying event during the COBRA continuation period (up to thirty-six months).
Individuals responding to the notice must establish their eligibility for this temporary COBRA premium assistance program. The attorneys at Campbell Durrant are, of course, available to assist employers with this new mandatory COBRA premium assistance program.