Last month we shared an alert detailing the COBRA premium subsidy included in the American Rescue Plan Act of 2021 (ARPA). The COBRA premium subsidy is available for Assistance Eligible Individuals (AEIs) from April 1, 2021 and ending the earlier of (1) the date that their COBRA coverage expires, or (2) September 30, 2021. For more information who qualifies as an AEI and additional requirements under ARPA, click here.
On April 7, 2021, the Department of Labor (DOL) issued guidance on the COBRA premium subsidy, providing key guidance for employers as well as model language for the notices required under ARPA.
ARPA requires employers to notify AEIs who have the opportunity to elect free coverage during the subsidy period and those whose subsidy will expire (no more than 45 days but no less than 15 days before the subsidy termination date). Employers will also need to revise their existing notices for individuals who become eligible for COBRA coverage during the subsidy period.
In accordance with ARPA, the DOL has provided the following model notices:
ARPA’s COBRA premium subsidy is applicable to all group health plans sponsored by private-sector employers and employee organizations subject to ERISA; state and local governments subject to the Public Health Service Act; and group health insurance required under state mini-COBRA laws.
Defining reduction of hours and involuntary termination
As we noted in our previous alert, the premium subsidy is available for workers who (1) are eligible for COBRA due to an involuntary termination or a reduction of hours, and (2) actually elect COBRA coverage. The DOL guidance does not define an involuntary termination of employment other than to state that it does not include a voluntary termination of employment. With respect to a reduction of hours, the DOL guidance indicates that this includes a reduction in hours due to a change in a business’s operating hours, a change from full-time to part-time status, a temporary leave of absence, and participation in a lawful labor strike. In order to qualify under the reduction of hours option, the individual must be an employee at the time his or her hours are reduced.
Coordination with other coverage
Individuals who meet the criteria above but are eligible for other group health coverage, such as through a new employer’s plan, a spouse’s plan (with the exception of excepted benefits, a qualified small employer health reimbursement arrangement, or a health flexible spending arrangement), or Medicare, are not eligible for the premium subsidy. Individuals who receive the premium subsidy are required to notify their plans if they become eligible for coverage under another group health plan or Medicare, as failure to do so can result in a tax penalty. However, those who receive individual health insurance coverage or Medicaid and who are otherwise eligible for the premium subsidy can still elect to receive it. Importantly, anyone who elects COBRA coverage and uses the premium subsidy will not be eligible to continue his/her individual coverage while receiving subsidized coverage under COBRA. Further, individuals who forego individual coverage for the COBRA premium 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 that period.
For families of AEIs in which some members previously elected COBRA coverage and some did not, ARPA grants a new election window to those who did not previously elect coverage.
Coordination with deadline relief during COVID outbreak period
ARPA requires employers to send notices to those who are or become eligible for premium assistance during the subsidy period and to those whose coverage under COBRA is expiring during the premium subsidy period (as detailed in our previous alert). Additionally, the Act creates a new election window for certain AEIs to elect COBRA coverage and receive the premium subsidy. Importantly, the DOL’s guidance confirmed that the deadline relief provided in the Notice of Extension of Certain Timeframes for Employee Benefit Plans, Participants, and Beneficiaries Affected by the COVID-19 Outbreak and in IRS Notice 2021-01 does not apply to notice requirements and election periods required under ARPA.
Collection of premiums
Because the Act requires AEIs to be treated as having paid the full amount for COBRA premiums from April 1, 2021 to September 30, 2021, plans should not collect premium payments from AEIs during this period and subsequently require them to seek reimbursement. This creates additional pressure for employers to be cognizant of those who qualify as AEIs even before notices are formally sent out.
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