ARPA and COBRA Premium Assistance for qualified beneficiaries

President Biden recently signed into law the American Rescue Plan Act of 2021 ("ARPA"), which includes a government subsidy that will pay 100% of the COBRA premium for all qualified beneficiaries who are eligible for COBRA as a result of an employee’s 1) involuntary termination of employment or 2) a reduction in hours. As such, the subsidy is not available to employees (and/or their dependents) who terminate employment voluntarily or who experienced any of the other COBRA qualifying events such as divorce, death, or loss of dependency status. The premium subsidy assistance will last from Apri1 1, 2021 through September 30, 2021, and will subject sponsors of group health plans to a number of new notice requirements discussed below. Additionally, premiums for COBRA qualified beneficiaries who are eligible for the premium assistance will be paid by the federal government to employers through credits against employers' Medicare taxes. The credits will be provided each quarter with respect to the amount of the premiums not paid by the COBRA individuals.

Coverage eligible for the subsidy includes all health coverage for which COBRA must generally be provided, with the exception of health flexible spending accounts. Thus, individuals may receive subsidized coverage for medical, dental and vision coverage.

For eligible COBRA enrollees, the subsidy will last for six months at most, and will end on the earlier of (i) the individual’s maximum period of COBRA coverage (generally 18 months), measured in connection with the original qualifying event of an involuntary termination of employment or reduction in hours, or (ii) September 30, 2021. Additionally, the subsidy may include the 2% administrative fee.

Moreover, the subsidy will end early if the qualified beneficiary becomes eligible for coverage under Medicare or another group health plan (other than coverage under an excepted benefit, a flexible spending arrangement, or a qualified small employer health reimbursement arrangement). While individuals are required to notify their former employer if they become eligible for other coverage, ARPA subjects individuals to a penalty of $250 if they fail to provide notice of their new coverage. If the failure to notify is deemed to be intentional/fraudulent, the penalty is the greater of $250 or 110% of the subsidy amount. However, no penalties will be assessed for failures due to reasonable cause and not willful neglect.

On a related note, individuals who do not have a COBRA election in effect on April 1, 2021, but who would have been an assistance eligible individual if an election were in effect, including an individual who discontinued COBRA coverage prior to April 1, 2021, will be given a new opportunity to elect COBRA coverage to take advantage of the premium assistance. This new election period begins on April 1, 2021, and ends 60 days after the required notice of this new election opportunity is provided. (Notice of the extended election period must be given within 60 days after April 1, 2021.) The newly elected coverage will be retroactive to April 1, 2021, and can last through the end of the individual's normal COBRA coverage period measured in connection with the original qualifying event of an involuntary termination of employment or reduction in hours (although the premium assistance will end no later than September 30, 2021). As such, individuals who terminated employment from November 2019 should be included among the universe of person who can theoretically take advantage of the subsidy, as their 18 months of eligibility would run through April 2021.

It is not clear whether the subsidy will apply where the employer voluntarily extends COBRA coverage to domestic partners. It is possible that a voluntary extension of COBRA without a statutory requirement will not be eligible for the subsidy. For the same reasons, it is unclear whether the subsidy would be available with respect to COBRA coverage voluntarily offered under any other scenario that is not required by law.

Importantly, if an assistance eligible individual erroneously pays a premium during the premium subsidy assistance period, the employer must refund the premium to the individual within 60 days after the date on which such individual made the premium payment.

The legislation explicitly allows a group health plan to permit an individual eligible for the subsidy to change health plan options from the option under which he/she were covered at the time of his/her involuntary termination of employment or reduction in hours to a plan option (other than a health FSA, an excepted benefit, or a qualified small employer health reimbursement arrangement) that does not exceed the premium for the individual’s existing coverage. (The other coverage must also be offered to similarly situated active employees of the employer at the time at which such election is made.) However, the plan is not required to offer this change of election opportunity. If allowed by the employer, the qualified beneficiary would have 90 days from the date of his/her COBRA notice to make a new election.

Notice Requirements

The ARPA COBRA premium assistance legislation imposes a number of new notice requirements:

·   COBRA election notices must be modified for individuals who become eligible for COBRA during the subsidy period referenced above to notify them of the availability of the premium assistance and, if applicable, the option to enroll in an alternative plan option.

·   Individuals who previously rejected or terminated COBRA coverage to whom a new election period must be offered (as discussed above) must be notified of their new election period and the availability of the premium assistance. This notice must be provided within 60 days after April 1, 2021.

·   A notice must be provided to assistance eligible individuals stating that their subsidies will expire soon, the date the premium assistance will expire, and that they may be eligible for coverage without premium assistance through COBRA coverage or through coverage under another group health plan. This notice must be provided no more than 45 days, but no less than 15 days, before the premium assistance will expire. The notice is not required where the subsidy is expiring because the individual has become eligible for coverage under another group health plan or Medicare.

ARPA directs the Secretary of Labor, in consultation with the Secretaries of the Treasury and Health and Human Services, to issue model notices to assist plan administrators with these new notice requirements. Model notices with respect to eligibility for premium assistance must be issued no later than 30 days after enactment of ARPA. A model notice with respect to the expiration of premium assistance must be issued no later than 45 days after enactment of ARPA.

·   Develop and implement a method of reporting all subsidy payments to aid you in filing for applicable credits against Medicare taxes; and

·   All related customer service and support.

Because these new changes are not reflected in the pricing of Allied’s current fee structure with you, we need to inform you that Allied will be charging a one-time $20.00 renotification fee for each individual that Allied is mailing a notice as a result of this legislation.  

Additionally, Allied’s default position is that its COBRA clients will not want to offer individuals eligible for the subsidy the ability to change health plan options from the option under which they were covered at the time of their involuntary termination of employment or reduction in hours. If any such client does want to offer such an election opportunity, however, please notify your Allied account manager no later than April 2, 2021.

If you have any questions, please contact us.