The Consolidated Omnibus Budget Reconciliation Act (COBRA), provides eligible employees and their dependents the option of continued health insurance coverage when an employee loses their job or experiences a reduction of work hours. One of the provisions of the American Rescue Plan Act of 2021 (ARPA) recently passed by Congress is a 100% COBRA premium subsidy and additional COBRA enrollment rights for certain employees (and their families) who have lost group health plan coverage due to an involuntary termination of employment or reduction of hours. Following are highlights of the COBRA provisions the ARPA Act:
- Premium Subsidy. ARPA establishes a 100% COBRA premium subsidy for certain assistance eligible individuals (AEIs) during the period beginning on April 1, 2021 and ending on September 30, 2021. An AEI is a qualified beneficiary who is eligible for and elects COBRA for a period of coverage within the subsidy period due to a qualifying event of involuntary termination of employment or reduction of hours. The employer or, in some cases, the plan or insurer, will pay 100% of an AEI’s COBRA premium during that period. The employer, plan, or insurer will be reimbursed by the federal government through a credit against payroll taxes or, for credit amounts exceeding payroll taxes, as a refund of an overpayment. The subsidy period may be shortened for AEIs who reach the end of their COBRA maximum coverage period or who become eligible for coverage under Medicare or another group health plan (excluding coverage consisting of only excepted benefits, health Flexible Spending Accounts (FSAs), and qualified small employer Health Reimbursement Arrangements (QSEHRAs)).
- Extended Election Period. Individuals who do not have a COBRA election in effect on April 1, 2021, but who would be AEIs if they did, are eligible for the subsidy. In addition, individuals who elected but discontinued COBRA coverage before April 1, 2021, are eligible if they would otherwise be AEIs and are still within their COBRA maximum coverage period. These individuals may elect COBRA during the period beginning on April 1, 2021 and ending 60 days after they are provided required notification of the extended election period. COBRA coverage elected during the extended election period will begin with the first monthly (or shorter) period of coverage beginning on or after April 1, 2021 and may not extend beyond the AEI’s original maximum coverage period.
- Plan Enrollment Option. The Act also creates a “plan enrollment option,” under which a plan may (but is not required to) permit AEIs to elect a different coverage option. An AEI would have 90 days after notice of the enrollment option is provided to make the election. The different coverage cannot have a premium that exceeds the premium for the individual’s existing coverage and must also be offered to active employees. Different coverage that offers only excepted benefits is excluded, as are QSEHRAs and health FSAs.
- Notices. Group health plans must timely notify AEIs who become entitled to elect COBRA during the subsidy period of the subsidy’s availability and the option to enroll in different coverage (if permitted by the plan). This notice obligation can be met by amending existing notices or by providing the required notices in a separate document. Plan administrators must notify AEIs who are eligible for an extended election period by May 30, 2021. In addition, plans must notify AEIs of their subsidy’s expiration between 45 and 15 days before the expiration date, unless the subsidy is expiring because the AEI has become eligible for coverage under another group health plan or Medicare. Specific notice content requirements apply, and the DOL is directed to issue model notices for initial subsidy notifications within 30 days of enactment and a model expiration notice within 45 days of enactment.
- Coordination with Health Coverage Tax Credit (HCTC). The HCTC is generally available to individuals eligible for Trade Adjustment Assistance and retirees receiving PBGC pension benefits who have lost their employer-sponsored health coverage. Effective for taxable years ending after the date of enactment, however, AEIs are not eligible for the HCTC for any period of coverage in which they receive a COBRA subsidy.
Employers, insurers, and administrators will need to implement the COBRA provisions in this legislation on very short notice, as subsidies are to be available beginning April 1, 2021. We look forward to the Department of Labor’s further guidance, particularly regarding how the subsidy interacts with the extension of COBRA deadlines due to the COVID-19 outbreak period. Nevertheless, preparations should begin now to address the challenges inherent in such a quick implementation.
This is a complicated area, and your specific situation will depend on your insurance arrangement and the number of employees that you have. We recommend, for those reasons, that you work with your human resources consultant and your insurance agent to determine exactly how these new rules will impact you. R&A is always happy to assist, but we are not insurance and human resource experts, so we recommend you contract those resources for further details.
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Dave specializes in tax research, estates and trusts, complex partnerships, and corporate, not-for-profit, and private foundation tax compliance.