Author: Shelly Hodges-Konys, CBC, Director of Compliance
On Wednesday, three entire days before its Saturday deadline, the DOL issued much anticipated FAQs on the COBRA subsidy provided for in the American Rescue Plan Act (“ARPA”). As a reminder, ARPA provides for a 6-month COBRA subsidy for individuals who lost their group health plan coverage due to an involuntary termination or reduction in hours. While the DOL filled in some of the holes for us, there are still some questions that we are left scratching our heads on (such as the mechanics of how employers will receive the credit).
There has been a lot of anticipation on how the prior DOL COVID relief on COBRA timing would interact with the timeframes related to the subsidy. The normal COBRA timing is that individuals have 60 days after the date that they initially receive their COBRA election notice to elect COBRA continuation coverage. Due to the COVID-19 National Emergency, that timeframe was extended until the earlier of (i) one year or (ii) 60 days following the end of the National Emergency. Under ARPA, all Assistance Eligible Individuals have 60 days from receipt of their extended election notice to elect COBRA or claim the subsidy if they are already enrolled in COBRA.
In the FAQs, the DOL stated that that an Assistance Eligible Individual has the choice of electing COBRA continuation coverage beginning April 1, 2021 (or beginning prospectively from the date of a qualifying event if the qualifying event is after April 1, 2021), OR electing COBRA continuation coverage starting from an earlier qualifying event if the individual is eligible to make that election, including under the extended time frames provided under the Joint Notice and EBSA Notice 2021-01. The FAQs further clarified that the subsidy election period does not cut off an individual’s pre-existing right to elect COBRA continuation coverage, including under the extended time frames provided under the Joint Notice and EBSA Notice 2021-01. However, those previous extensions do not apply to the notices or elections related to the subsidy. In other words, the COVID relief does not apply to the second election period and individuals only have 60 days from receipt of their second election notice to elect COBRA prospectively from April 1 on or to claim the COBRA subsidy.
Individuals are not eligible for the subsidy if they are eligible for other group health coverage or Medicare. The FAQs confirmed that other coverage includes eligibility for coverage through a new employer’s plan, a spouse’s plan, or Medicare. Individuals that have coverage through the Marketplace or Medicaid may be eligible for the subsidy. However, if such an individual enrolls in COBRA continuation coverage to obtain the subsidy they will no longer be eligible for a premium tax credit, advance payments of the premium tax credit, or the health insurance tax credit for health coverage during that period that may have been available through the Marketplace or Medicaid.
The subsidy is only for coverage periods from April 1, 2021 through September 30, 2021. The subsidy does not extend the individual’s maximum coverage period. Therefore, if an Assistance Eligible Individual’s COBRA period ends on June 30, 2021, the individual would only be eligible for 3 months of COBRA subsidy. The FAQS confirm that individuals will not receive refunds for any premiums paid for periods prior to April. If an individual has already paid their April premium in full, the employer or plan may either issue a refund or credit to the individual.
In addition to the FAQs, the DOL also issued model notices. These model notices should be used as the starting point to satisfy your new notice requirements under ARPA. There is a new general notice and election form for any qualified beneficiary who loses coverage due to a reduction in hours or involuntary termination of employment with a COBRA period beginning during the period of April 1 – September 30. The DOL issued an alternative notice for plans subject to state continuation coverage.
The DOL also issued a model extended election notice. You can use this notice to inform all individuals who lost coverage due to involuntary termination or reduction in hours and who are still in their 18-month COBRA window in April 2021 of their subsidy rights. Employers must send this notice to Assistance Eligible Individuals before May 31st whether the individual is currently enrolled in COBRA, previously declined COBRA or enrolled and later dropped COBRA. This requirement does not apply to plans that are subject to state continuation requirements as there is no second election period for their participants under ARPA.
The DOL issued a summary of COBRA premium assistance, which is to be enclosed with the other notices to help individuals know whether they are eligible for the subsidy. This summary also includes the form that individuals will complete and return to let you know they qualify as an assistance eligible individual.
ARPA also requires employers and plans to notify Assistance Eligible Individuals 15 – 45 days before their COBRA subsidy will expire. The DOL issued a model notice to be used for this purpose. You do not need to send this notice if the individual is losing the subsidy due to becoming eligible for other group health plan coverage or Medicare.
In the FAQs, the DOL clarified that the COVID relief on timing of providing notices under EBSA Disaster Relief Notice 2021-01 does not apply to the notices related to the COBRA subsidy. A failure to timely send any of the above required notices could result in an excise tax on the employer of up to $100 per qualified beneficiary not to exceed $200 per family, for each day that the notice is late or not provided.
While we may still receive additional guidance on the subsidies, we now have enough information that you should be taking action to comply. Here are some recommended next steps:
Pull together a list of all individuals who lost coverage under your group health plans due to an involuntary termination of employment or reduction in hours on or after October 1, 2019. For plans only subject to state continuation, you will instead pull together a list of those on continuation coverage who lost coverage due to an involuntary termination of employment or reduction in hours and are still in their maximum continuation period.
Check with your COBRA administrator to determine how much they plan to assist you with.
Draft an updated general election notice (or review the one created by your COBRA administrator) for use with individuals who have a COBRA qualifying event on or after April 1.
Draft the new extended election notice (or review the one created by your COBRA administrator) and send to all potential Assistance Eligible Individuals before May 31.
For additional information, please contact your HORAN representative.
The information contained in this document is informational only and is not intended as, nor should it be construed as, legal or accounting advice. Neither HORAN nor its consultants provide legal, tax nor accounting advice of any kind. We make no legal representation, nor do we take legal responsibility of any kind regarding regulatory compliance. Please consult your counsel for a definitive interpretation of current statute and regulation, and their impact on you and your organization.