AMERICAN RESCUE PLAN MANDATES NEW COBRA SUBSIDIES
By Paula Jackson
March 22, 2021
The American Rescue Plan Act of 2021 (“Act”) mandates that employers or group health plans pay COBRA (or mini-COBRA) premiums for up to six months beginning April 1, 2021, and issue certain related notices.
What does the Act require?
The Act requires employers or group health plans to pay 100% of COBRA continuation (or mini-COBRA) continuation coverage (“COBRA”) premiums from April 1, 2021, until September 30, 2021 (“subsidy period”) for employees (and their dependents) eligible for COBRA because their hours were reduced or they were involuntarily terminated. The COBRA premiums paid may generally be recouped through tax credits (as further detailed below). Due to the availability of this new subsidy, the Act requires revised Notices of Eligibility and reminder notifications about when the subsidy ends to be sent out and mandates certain other changes in the administration of continuation coverage.
Who is eligible for this subsidy?
Qualified beneficiaries (including former employees, employees with reduced hours, and their dependents) are eligible for the subsidy if they are enrolled in or become eligible for COBRA during the subsidy period, but only if they became eligible due to the covered employees’ reduction of hours or involuntary termination (for reasons other than gross misconduct). Individuals who voluntarily terminated their employment are not eligible to receive this subsidy. To obtain the subsidy, eligible individuals and their dependents must make a COBRA election for the subsidy period from April 1, 2021, through September 30, 2021.
Additionally, the Act provides an “extended election period” with a corresponding subsidy from April 1, 2021, through September 30, 2021, for individuals (and their dependents) who were previously eligible for COBRA but failed to elect it or discontinued it before April 1, 2021. However, this extended election period is only available to those individuals whose maximum COBRA continuation period (usually 18 months for federal COBRA, but possibly more) has not yet expired. This Act does not extend the maximum COBRA continuation period. The subsidy is available only if they became eligible for continuation coverage due to reduction of hours or involuntary termination (other than for gross misconduct). These individuals must elect coverage for the subsidy period within 60 days after receiving their revised Notices of Eligibility, and their coverage may begin as of April 1, 2021.
How long are individuals eligible?
Those individuals identified above are eligible for subsidies from April 1, 2021, through September 30, 2021. However, the subsidy ends if the individual’s maximum period of continuation coverage expires (e.g., usually 18 months for federal COBRA, but possibly more), or he becomes eligible for Medicare or another qualified group health plan. The individual must notify the employer’s group health plan if he becomes eligible for such coverage.
What premium must be paid, and by whom?
The entity that must pay the COBRA continuation premium is, in this order: (1) the group health plan if it is a multiemployer plan; (2) the employer maintaining the group health plan if it is subject to COBRA continuation provisions or if not all of the coverage is provided by insurance (e.g., self-insured plans); or (3) the insurer providing the group health plan coverage (e.g., for employers subject to state mini-COBRA statutes).
The responsible entity must pay the total cost of the COBRA continuation coverage premium, including the administrative fee, if any. However, the Act anticipates that this entity will also be permitted to claim a tax credit. The government will issue regulatory guidance regarding implementing this Act, including tax credits, advances of credit, and reporting information.
Are plan changes permitted under the Act?
The employer may permit an eligible individual who is enrolled in its group health plan to switch to another employer-sponsored plan (excluding FSAs, HRAs and excepted benefits plans) within 90 days after notice of that option if the premium for the new coverage does not exceed the former premium and the plan is available to similarly situated employees.
Are revised COBRA notifications required?
Plan administrators must provide eligible individuals (and dependents) with clear and understandable written COBRA Notices about this new subsidy, either by amending their existing Notice forms or creating a separate document. Failure to provide such notices with all required information within the deadlines will result in a failure to meet the COBRA notice requirements.
Once the Secretary of Labor issues Model Notices about premium assistance, those Notices must be sent to the following individuals by the deadlines indicated below:
(1) Individuals (and dependents) who are enrolled in or become eligible for continuation assistance during subsidy period (DOL will issue a Model Notice by April 10, 2021) (“Notice of Eligibility”);
(2) Individuals (and dependents) who get an extended election period because they would still be eligible for coverage if they had not declined or stopped it prior to the subsidy period (DOL will issue a Model Notice by April 10, 2021, and you must Send a Notice by May 31, 2021) (“Notice of Eligibility” for Extended Election Period); and
(3) Individuals whose premium assistance is about to expire, unless their eligibility expires due to becoming eligible for other health coverage. (DOL will issue a Model Notice by April 25, 2021, and you must send this Notice no more than 45 days before the subsidy expires and no later than 15 days before subsidy expires.
If you have any questions about this Act and your responsibilities regarding it, please contact your legal counsel or group plan administrator as soon as possible to ensure that your COBRA administration process is legally compliant.
The American Rescue Plan Act of 2021, which was enacted March 11, 2021, can be found in its enrolled form at https://www.govinfo.gov/content/pkg/BILLS-117hr1319enr/pdf/BILLS-117hr1319enr.pdf. Under Section 9501(a)(9)(B) of the Act, “‘COBRA continuation coverage’ means continuation coverage provided pursuant to part 6 of subtitle B of title I of the Employee Retirement Income Security Act of 1974 (other than under section 609), title XXII of the Public Health Service Act, or section 4980B of the Internal Revenue Code of 1986 (other than subsection (f)(1) of such section insofar as it relates to pediatric vaccines), or under a State program that provides comparable continuation coverage.” However, “[that] term does not include coverage under a health flexible spending arrangement under a cafeteria plan within the meaning of section 125 of the Internal Revenue Code of 1986.” Section 9501(a) of the Act details these provisions. See Section 9501(a)(4). See Section 9501(a)(2). The subsidy will not end if the individual only becomes eligible for flexible spending arrangements (“FSAs”), health reimbursement arrangements (“HRAs”), or a plan that provides only “excepted benefits” as defined by section 9832(c) of the Internal Revenue Code, such as disability income or accident insurance where medical care is secondary to other insurance benefits (“excepted benefits plans”). See id. See Section 9501(a)(2). If he intentionally fails to notify the plan without reasonable cause, he will receive a penalty, which will be the greater of $250 or 110% of the premium assistance provided after his eligibility terminated. See Section 9501(b)(2). See Section 9501(b). Section 9501(a)-(b). If an eligible individual pays a premium that is not required due to the subsidy, the entity responsible for paying that premium must reimburse the individual for the premium amount paid within 60 days of the date that the individual paid the premium. Then, the Act says that the entity which reimbursed the individual will be permitted to receive a credit for that reimbursement. See Section 9501(b)(2). See Section 9501(b). In Section 9501(b), the American Rescue Plan Act of 2021 indicates that the tax credit cannot exceed the employment tax for the calendar quarter, that if it does the excess will be refunded as an overpayment, that credit for the premiums can be advanced in anticipation of the credit (including the refundable part), and that the penalty for failure to deposit the tax will be waived if the failure was due to this anticipated credit permitted under this Act. Also, to avoid double benefits, the Act states that the gross income of the entity permitted a credit will be increased by the amount of that credit for the taxable year, and credit will not be allowed for amounts that have already been taken into account as qualified wages under the CARES Act, the Families First Coronavirus Response Act, or this Act. See id. It also indicates that the subsidy is not taxed to the individual but is excluded from his gross income. See id. However, this Article is not intended to give, nor should it be taken as, tax advice. See Section 9501(a)(1)(B). See Section 9501(a)(5)-(6). See Section 9501(a)(5). Notices of Eligibility must include: (1) that this COBRA premium assistance is available to the individual; (2) he has a right as a qualified beneficiary to this subsidized premium and the conditions to this entitlement (displayed prominently); (3) forms to establish premium assistance eligibility; (5) contact information for plan administrator and other persons with information about premium assistance (including name, address, and telephone); (6) a description of individual’s responsibility to notify the health plan if he becomes eligible for other group health insurance (or Medicare) and the penalty for failure to notify; and (7) the individual has an option to enroll in different coverage (if his employer permits). See id. See Section 9501(a)(5). Notices of Eligibility must include: (1) that this COBRA premium assistance is available to the individual; (2) he has a right as a qualified beneficiary to this subsidized premium and the conditions to this entitlement (displayed prominently); (3) individuals who previously declined or terminated COBRA (but whose maximum coverage period has not yet expired) may apply for COBRA for this subsidy period within 60 days of receiving notice; (4) forms to establish premium assistance eligibility; (5) a description of the extended election period and that he has only 60 days from the date he received notice to apply; (6) contact information for plan administrator and other persons with information about premium assistance (including name, address, telephone); (7) the individual has an option to enroll in different coverage (if his employer permits); and (8) a description of his responsibility to notify the health plan if he becomes eligible for other group health insurance (or Medicare) and the penalty for failure to notify. See id. See Section 9501(a)(6). This Notice must include that premium assistance will expire on a certain date (displayed prominently) and that the individual may still elect to be covered through continuation coverage without premium assistance (or may be covered under a group health plan without premium assistance). See id.