Congress Passes 100% COBRA Subsidy Through September

Updated 03/15/2021. This information based on guidance provided by government agencies as of March 15th. Updates may follow. 

​President Joe Biden signed the American Rescue Plan Act (ARPA) into law last Friday, March 11th.  While the Act is purposed to offer relief to American’s due to the COVID-19 pandemic, the focal point of this article is the COBRA aspect – which includes legislation mandating free COBRA coverage to eligible persons for six months.

Employers and Plan Sponsors will need to stay apprised of the new rules that have been born with the passing of this new law – especially from an administrative perspective. Certain Qualified beneficiaries need to be made aware of their new (temporary) COBRA rights and the government sponsored COBRA premiums (a subsidy).  This is comparable in many ways, to the COBRA subsidy of 2009, which was passed under the American Recovery and Reinvestment Act.

What does the new COBRA subsidy mean for Employers?  
Many employers are warily watching this new COBRA premium subsidy, having flashbacks to the subsidy of 2009, which bore consequences administratively and financially for businesses nationally. We are hopeful that this time around, the regulatory authorities provide clear guidance on how to implement and manage the COBRA premium subsidy under ARPA. 
Several key differences stand out for the proposed COBRA subsidy in 2021:

• The percentage, which is 100% of an individual’s COBRA monthly premium. This means free COBRA to those who are eligible;
• The duration, which is proposed to be six months ending this September;
• And the types of qualifying events that may include the subsidy—which are reduced working hours and involuntary termination of employment. 

​What do Employers need to do?
Fiduciaries, administrators, and Plan Sponsors should prepare for updated COBRA notifications, billing processes that align with government sponsored premiums and prepare to adequately inform any person who may be eligible for these subsidies.
The subsidy takes effect April 1st, 2021, and include retroactive eligibility for individuals who experienced involuntary termination of employment or reduced working hours, and would still fall within their 18 months of maximum allowable time on COBRA.  This means that qualified beneficiaries with events going as far back as October 2019 may take advantage of subsidized COBRA.

​Employers will obtain the subsidy, to be passed along to those who enroll into COBRA continuation coverage, through a payroll tax credit against the employer’s quarterly taxes.  This aspect is reminiscent of how the subsidy was handled in 2009. 

​Duration Information: Six-Month COBRA Subsidy
According to ARPA, the government’s COBRA subsidy to cover premiums of ex-employees will:

• Begin on the first day of the month following the enactment date of the law (said to be April 1st, 2021).
• End on September 30, 2021.

Employees who experience voluntary termination of employment or dependent events, such as divorce or Medicare entitlement, are NOT eligible for this subsidy.
For those who are eligible, such as employees who experienced a termination of employment such as lay-off, the subsidy would last for six months maximum. It will end if the individual becomes eligible for other group health plan coverage or Medicare.
Qualified Beneficiaries participating in the subsidy are required to notify their Plan Administrator if they become eligible for other coverage and there will be a penalty if they fail to do so. 

Employee Coverage Options:
The legislation allows employers to give laid-off employees up to 90 days (following COBRA notification) to elect to enroll into a different group health plan offered by the Employer.  However, the premium for the alternative plan coverage cannot be higher than the premium for the plan which the employee was originally enrolled in prior to the COBRA qualifying event.
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COBRA Premiums:
Under normal circumstances, terminated workers who choose to keep their employer-sponsored health plan for up to 18 months (under COBRA) may be required to pay the full cost of the monthly premiums plus a 2% administrative fee. This was quite costly and even unaffordable for those who had lost their employment during the pandemic. Hence, the impending subsidy will cover 100% of these premiums.
Under the ARPA, a qualified beneficiary who is eligible for the subsidy assistance, and who has not elected COBRA coverage by April 1st, 2021, or who elected COBRA but then discontinued it, may elect COBRA coverage during an enrollment period starting April 1st and ending 60 days after the date on which the COBRA notice was delivered. 

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​What are the Notice Requirements?
The legislation requires that employers adjust COBRA notifications and forms by including a separate document which includes information such as:

• The forms necessary for establishing eligibility for COBRA premium assistance.
• The name, address, phone number and any other contact details necessary for the participant to reach the Plan Administrator (and any other party maintaining information in connection with the premium assistance, such as third-party administrators).
• A description of the extended election period (as provided by ARPA).
• A description of the option to enroll in different coverage (if the employer adopts this option).
• Plans will be required to notify eligible participants if their subsidy will end before Sept 30, 2021, although that notice would not be required if their subsidy is ending due to eligibility for other coverage.

The government (aka DOL and agencies) is required to issue model notices within 30 days of enactment. However, we encourage Employers and Plan Sponsors to prepare their new notifications now, as the administrative duties to follow are both complex and time consuming. New notices will need to be issued for those who are currently on COBRA coverage, and for those electing, AND when the subsidy terminates.
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There is a separate notice that Employers will need to issue to those eligible for the COBRA subsidy to advise them of the periods of premium assistance are due to expire.  Proof of such notifications could prove to be problematic should for ERISA compliance investigations conducted by EBSA choose to investigate Plan compliance with this aspect. 

Preparing for Administrative Challenges:
Employers will need to stay apprised of administrative issues related to notifying those eligible persons that may have had a COBRA Qualifying Event (loss of employment) in the last year, and learn how to address situations where the Employer may have subsidized a portion of the COBRA premium (voluntarily paid for a portion of COBRA participant premiums prior to the subsidy under ARPA).
Plan Administrators should start working now to gather the names of any COBRA beneficiaries who had the involuntary termination of employment events or reduced hour events in 2020, so that they can ensure these individuals receive the notice of the six-month subsidy period and a notice about the ability to elect COBRA.  Generally, this includes anyone who could have had COBRA as far back as November 2019, because their 18 month period of COBRA coverage would extend through April 2021.
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Most employers outsource COBRA administration, so these challenges will likely fall on administrators, perhaps even more-so than on individual employers.  Employers and third-party administrators will need to work together to gather records, and ensure that all eligible beneficiaries are notified. TPA’s, such as CobraHelp will depend on good record keeping of employer customers, and will heavily depend on accurate employee terminations being reported as these matters unfold. Certainly, there is no doubt that even employers who outsource COBRA administration have a huge role to play in terms of responsibility during this COBRA subsidy.

How Will the COBRA Subsidy Impact the COBRA Deadline Extension (Under Joint Final Rule)?
Experts say those individuals such as qualified beneficiaries eligible for the COBRA extended timelines would be covered by the COBRA subsidy if they also meet the eligibility requirements under ARPA.
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What to Do If You Need Help Managing This COBRA Subsidy:
Don’t hesitate to contact the CobraHelp Experts. We provide administrative assistance to employers and broker groups of all sizes on a national level and are ready to help you tackle the challenges of the COBRA Premium Subsidy under the American Rescue Plan Act, as well as all other challenging aspects of COBRA Administration. 

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