Seyfarth Synopsis: As discussed in our March 11, 2021 Alert, Congress has made another avenue of health coverage more accessible by fully subsidizing the cost of COBRA coverage from April 1 - September 30, 2021 for individuals who lost their health coverage due to an involuntarily termination or a reduction in hours under the American Rescue Plan Act of 2021 (ARPA). On April 7, 2021, the Department of Labor (DOL) published FAQs to further explain this COBRA subsidy and provided models of the required related notices.
Notable Points from the FAQs
Eligibility Based on Reduction in Hours. The FAQs take an expansive view on when a reduction in hours constitutes a qualifying event (clarifying that “involuntary” does not modify the reduction in hours trigger), stating that the following situations are covered: “reduced hours due to change in a business’s hours of operations, a change from full-time to part-time status, taking of a temporary leave of absence, or an individual’s participation in a lawful labor strike, as long as the individual remains an employee at the time that hours are reduced.” Terminations of employment only render an employee eligible for the subsidy though if involuntary. (The guidance did not define what constitutes an involuntary termination, but clarified that exclusions for gross misconduct will still apply.)
Interaction with DOL Outbreak Period. The election extension provided under the DOL’s Outbreak Period guidance (generally tolling the COBRA election period window for up to a year) does not apply to the newly created, 60-day election window under the ARPA. In other words, subsidy-eligible individuals who fail to elect COBRA within 60 days of the date they receive the notice will not be eligible for a subsidy. (They may still qualify for COBRA under the DOL’s Outbreak Period rules, but it will be at their own cost.)
Similarly, the DOL relief extending notice deadlines does not apply to the ARPA-required notices (the general election notice or the notice of pending subsidy expiration, discussed below).
Impact of Employer COBRA Subsidy. The FAQs do not address one of the key questions many employers have been asking: If the employer subsidizes COBRA via a severance arrangement, will that reduce the amount of tax credit the employer may claim? The guidance merely states the following: “An employer or plan to whom COBRA premiums are payable is entitled to a tax credit for the amount of the premium assistance.”
Deadline for Distributing New Election Notice. The FAQs specify that the deadline for plans to distribute the new ARPA general election notice is May 31, 2021. Any coverage elected pursuant to that general notice would be effective retroactive to the first period of coverage beginning on or after April 1, 2021. Or, the employee can elect to enroll only prospectively following receipt of the notice (but that delayed enrollment does not extend the subsidy window). An individual may want to delay enrollment if he or she was enrolled in Marketplace coverage and receiving a tax credit (as the subsidized COBRA could render that person ineligible for the tax credit).
Timing of Participant Coverage Election. If an individual believes he or she qualifies for the COBRA subsidy, that person can reach out to the COBRA administrator or plan administrator in advance of receiving the election notice and request the right to enroll. If the person is correct that he or she qualifies, the plan cannot require the person to pay a premium (even if it intends to reimburse them later after the election notice goes out). Presumably the person would ultimately need to later return the election notice however (which certifies to the employer the individual’s eligibility for the subsidy).
Plan Cannot Require Payment of Admin Fee. The FAQs make clear that the assistance-eligible individual cannot be charged anything for COBRA (the plan cannot charge the admin fee to the participant).
Marketplace Special Enrollment at Subsidy Expiration. The FAQs indicate a subsidy expiration “may” constitute a Marketplace special enrollment event. It is unclear whether this suggests that offering such a special enrollment is at the discretion of the Marketplace/carrier, or if it is required.
New Model Notices
ARPA requires employers to notify qualified beneficiaries regarding the availability of this COBRA subsidy and their related rights. The DOL provided the following model notices as described more fully below:
Notice: General Notice. Deadline: 60 days after the qualifying event (normal COBRA procedure). Description: This notice is for plans subject to Federal COBRA to send to individuals experiencing any qualifying event between April 1, 2021-September 30, 2021 (including voluntary terminations). It is essentially the DOL’s standard COBRA general notice with ARPA information woven throughout. So, while this notice may be provided separately or with the standard COBRA general notice, it makes sense to use the ARPA general notice during the relevant period rather than providing participants two sets of notices.
Notice: Alternative Notice Deadline: Normal state mandated deadlines. Description: This notice is an option for plans subject to state mini-COBRA laws (not Federal COBRA). They may send to individuals experiencing any qualifying event between April 1, 2021-September 30, 2021 (including voluntary terminations).
Notice: Notice of Extended Election Period. Deadline: May 31, 2021. Description: This is the notice directed at people who had COBRA qualifying events in the past. It is for individuals who lost Federal COBRA coverage due to involuntary termination of employment or reduction in hours occurring generally between October 1, 2019 and March 31, 2021.* So by May 31, 2021, employers must notify such individuals that they have a special 60-day opportunity to elect COBRA prospectively between April 1, 2021 through September 30, 2021. The COBRA coverage period cannot exceed the coverage period they otherwise would have been entitled to in connection with the original qualifying event.
Notice: Notice of Expiration of Subsidy Period. Deadline: 15-45 days before subsidy ends. Description:ARPA also requires notice when premium assistance is expiring, with the notice to be sent no more than 45 days from expiration, and no less than 15 days from expiration. It must be sent to anyone whose subsidized Federal or State mini-COBRA ends between April 1, 2021 and September 30, 2021, and is still entitled to more COBRA coverage after the subsidy ends.
The FAQs provide that employers may be subject to an excise tax of $100 per qualified beneficiary per day, not to exceed $200 per family per day, for failure to timely provided the above notices.
Please contact your Seyfarth Benefits Attorney with any questions.
*This is general guidance only. The specific dates may vary from plan to plan.