As explained in a prior post, Beware of the COBRA lurking in the weeds of the latest COVID-relief bill, the American Rescue Plan Act (ARPA) allows many current and former employees and their dependents—those deemed “assistance eligible individuals” (AEIs)—to receive fully subsidized COBRA continuation coverage for periods covering April 1 through September 30, 2021. AEIs are qualified beneficiaries under COBRA who had a qualifying event due to a reduction in hours or an involuntary termination of employment, and who elect COBRA coverage. ARPA also creates an extended election period for individuals who would have been AEIs as of April 1 if they had elected COBRA coverage when offered previously or if their COBRA coverage had not been discontinued.
ARPA further requires that employers/plan sponsors provide notice of the extended enrollment period to eligible beneficiaries whose qualifying event occurred prior to April 1, 2021, and requires that a general ARPA notice be provided to eligible beneficiaries whose qualifying event occurs during the period covering April 1 through September 30, 2021.
Since the date of our earlier post, the US Department of Labor has published answers to frequently asked questions (FAQs) about the COBRA premium subsidy, albeit primarily directed to employees, and has issued model notices. Here is what employers with group health plans subject to federal COBRA need to know about the recent DOL guidance:
- Notice where COBRA qualifying event occurred prior to April 1, 2021. By May 31, 2021, employers/plan sponsors are required to send notice of the extended election period to qualified beneficiaries who had a COBRA qualifying event due to a reduction in hours or an involuntary termination of employment prior to April 1, 2021 (even if the individual declined to enroll in COBRA at that time or elected COBRA continuation coverage but is no longer enrolled). This requirement does not include those individuals whose maximum COBRA continuation coverage period, if COBRA had been elected or not discontinued, would have ended before April 1, 2021 (generally, those with applicable qualifying events before October 1, 2019). See The DOL’s Model COBRA Continuation Coverage Notice in Connection with Extended Election Periods.
- Notice where COBRA qualifying event occurs during the period covering April 1 through September 30, 2021. Employers/plan sponsors are required to send a general ARPA notice to qualified beneficiaries who have a COBRA qualifying event due to a reduction in hours or an involuntary termination of employment during the period covering April 1 through September 30, 2021. See The DOL’s Model General ARPA Notice and COBRA Continuation Coverage Election Notice. The notice must be sent within 60 days of the qualifying event.
- Employers are not required to automatically provide the premium subsidy to AEIs. Instead, AEIs must opt in to receive the benefit by submitting a “Request for Treatment as an Assistance Eligible Individual,” which is included as part of the model notices. On the “Request for Treatment as an Assistance Eligible Individual,” the employee must attest that the COBRA qualifying event was a reduction in hours or an involuntary employment termination, and that the employee is not eligible for Medicare or any other group health plan coverage.
- An AEI will cease being eligible for the COBRA subsidy if such individual becomes eligible for (rather than covered by) “other group health coverage, such as through a new employer’s plan or a spouse’s plan” or Medicare.
- If an employee’s termination from employment is due to “gross misconduct,” neither the employee nor the employee’s dependents are eligible for COBRA continuation coverage or the premium subsidy.
- Individuals who lose coverage due to a reduction in hours are eligible for the COBRA premium subsidy regardless of whether the reduction in hours is voluntary or involuntary.
- Employees whose COBRA qualifying event is a “voluntarily termination” from employment do not qualify for the premium subsidy. However, there are a variety of factual situations where an employment termination cannot be clearly classified as either “voluntary” or “involuntary” (e.g. a termination pursuant to a mutually agreed severance agreement or the end of limited duration or seasonal employment). Unfortunately, neither ARPA nor the DOL’s guidance provides any clarification on this issue. Thus, given the intent of the law and the fact that tax credits are being provided to employers to help offset the costs of the premium subsidy, until further guidance is issued by the federal agencies administering the new law, it is recommended that employers use caution when determining whether a particular employment termination was “voluntary.”
Going forward, employers will need to identify all terminated individuals who must be provided notice and/or work with their plan sponsors to provide such notices within the applicable timeframe. Employers should also consider how the premium subsidies will impact severance agreements that include employer-paid COBRA premiums as consideration for a release of claims and determine whether any temporary modifications are required or desired based on the new law.
The DOL has created a DOL webpage dedicated to providing information on the COBRA premium subsidy
If you have any questions or would like more information on the issues discussed in this post, please contact Tom Reddin
or Josh Owings