Update: US Department of Labor Issues FAQs and Model Notices Regarding Free COBRA Coverage Under the American Rescue Plan Act of 2021
The U.S. Department of Labor (DOL) has issued Frequently Asked Questions (FAQs) regarding the subsidies available to eligible individuals to obtain up to six months of free COBRA coverage under the American Rescue Plan Act of 2021 (“ARPA”). The DOL website also includes Model Notices that must be sent to those who are eligible for the subsidy by May 31, 2021. The DOL has also published a “Summary of COBRA Premium Assistance Provisions” which includes a “Request for Treatment as an Assistance Eligible Individual Form” that employees may send to their employers.
Individuals Who Lost Health Insurance Due to An Employee’s Involuntary Termination of Employment or Reduction of Hours are Eligible for up to Six Months of Free COBRA Coverage Under the American Rescue Plan Act of 2021
March 31, 2021
The American Rescue Plan Act of 2021 (“ARPA”) provides individuals who have lost their employer-provided health insurance because of an involuntary termination of employment or reduction in hours with the ability to continue their health insurance coverage under the federal Consolidated Omnibus Budget Reconciliation Act (COBRA) without cost for up to six months, from April 1, 2021, through September 30, 2021.
Generally, under COBRA, an employee who loses employer-provided health insurance and their covered dependents (“qualified beneficiaries”) due to a termination of employment or reduction in hours can elect to continue the same coverage at their own cost for up to 18 months. Under the ARPA COBRA subsidy, eligible individuals will not have to pay any premium for up to six of the 18 months, but only for coverage during the period from April 1, 2021, through September 30, 2021.
Who Is Eligible for the Subsidy?
An “assistance eligible individual” under ARPA is any qualified beneficiary who, due to a covered employee’s involuntary termination of employment or a reduction in hours, becomes or is already eligible for COBRA continuation coverage during the period from April 1, 2021, through September 30, 2021. Individuals who have lost insurance coverage because of an employee’s voluntary termination of employment or other reasons are not eligible for the subsidy.
Importantly, this means that anyone who became eligible for COBRA because of an involuntary termination of employment or reduction in hours that occurred in the 18-month period before April 1, 2021 (i.e., as far back as November 1, 2019) will qualify for the COBRA subsidy (for coverage on a prospective basis). This includes those who did not previously elect COBRA coverage and those who elected COBRA coverage but discontinued it. ARPA gives these qualified beneficiaries a second chance to elect COBRA coverage, but they must elect such coverage no earlier than April 1, 2021, and no later than 60 days after they receive a Subsidy Eligibility Notice, described below.
The COBRA subsidy is only available during the six-month period from April 1, 2021, through September 30, 2021. Notably, ARPA does not extend COBRA coverage beyond the 18-month COBRA period.
For example, an individual who was laid off on December 31, 2019, and lost insurance coverage on that date but did not elect COBRA coverage will have a second chance to elect COBRA coverage, with the ARPA 100 percent subsidy, starting on April 1, 2021. However, that individual’s COBRA coverage will still end on June 30, 2021, at the expiration of the 18-month COBRA period.
When Does the COBRA Subsidy End?
The COBRA subsidy will expire on the earliest of any of the following:
- September 30, 2021;
- when the qualified beneficiary becomes eligible for any other group health plan (subject to certain exceptions);
- when the qualified beneficiary becomes eligible for Medicare; or
- the expiration of the 18-month maximum COBRA coverage period.
A qualified beneficiary must notify the plan providing COBRA coverage if the beneficiary loses eligibility for the COBRA subsidy due to becoming eligible for another group health plan or Medicare. Failure to do so may result in penalties.
Option to Enroll in an Alternative Plan
Subject to certain conditions, ARPA also allows but does not require, a plan sponsor to provide eligible individuals with the option to switch to an alternative health insurance plan offered by the sponsor.
What Notices Must Be Provided?
Plan administrators must provide (i) a Subsidy Eligibility Notice by May 31, 2021, and (ii) a Notice of Subsidy Expiration. The United States Department of Labor (DOL) has provided model notices on its website, available here.
The Subsidy Eligibility Notice, which plan administrators must include as part of all COBRA election notices provided between April 1, 2021, and September 30, 2021, must include the following additional information:
- a description of the right to subsidized COBRA coverage and any conditions on receiving subsidized coverage;
- forms necessary for establishing eligibility for the COBRA subsidy;
- the name, address, and telephone number for the plan administrator or any other individual maintaining relevant information related to the COBRA subsidy;
- an explanation that those who did not elect COBRA coverage before April 1, 2021, and those for whom COBRA coverage was discontinued, will have 60 days from the date of the notice to elect subsidized COBRA coverage;
- the individual’s obligation to notify the plan upon becoming eligible for other group health plan coverage or Medicare and the penalty for failure to do so; and
- a description of any option to choose alternative coverage (if offered by the plan).
This additional information may either be included by amending existing COBRA election notices or by including a separate document containing this information.
The Subsidy Election Notice must be provided no later than May 31, 2021. The DOL has provided three model notices on its website:
- a “General Notice and Election Notice;”
- a “Notice in Connection with Extended Election Period,” for those whose involuntary termination or reduction in hours occurred before April 1, 2021, and
- an “Alternative Notice” for insurance subject to state continuation requirements.
Plan administrators must also provide qualified beneficiaries with a written Notice of Subsidy Expiration that explains when the COBRA subsidy will end. This notice must be provided between 45 and 15 days before the expiration date of an individual’s COBRA subsidy and must explain that the individual may still be eligible to continue to pay for unsubsidized COBRA coverage or under another group health plan. This notice is not required for those whose subsidy is expiring because they became eligible for other group health coverage or Medicare. The DOL has provided a model “Notice of Expiration of Premium Assistance” on its website.
Who Will Receive the COBRA Subsidy Tax Credit?
Individuals eligible for the COBRA subsidy will not be required to pay the premium. The entity that incurs the cost of a qualified beneficiary’s COBRA coverage will be reimbursed through a tax credit or refund, applied against quarterly Medicare payroll taxes. The entity who is entitled to the tax credit or refund depends on the type of health plan at issue, as follows:
- For multiemployer plans (e., a collectively bargained plan maintained by more than one employer), the multiemployer plan is entitled to the tax credit or refund. Contributing employers to multiemployer plans will not be responsible for advancing premiums or applying for the credit or refund.
- For a non-multiemployer plan that is subject to federal COBRA or is partly or fully self-insured, the employer maintaining the plan is entitled to the credit or refund. In this situation, the employer will be responsible for paying the premium on behalf of assistance eligible individuals and then applying for the tax credit. Subject to guidance that will be issued by the Treasury Department, the tax credit may be advanced. If the tax credit exceeds the payroll tax, it is treated as a refundable tax overpayment.
- For all other health plans not subject to COBRA, such as small employer plans subject to state continuation coverage requirements, the insurer is entitled to the credit or refund.
If an assistance-eligible individual pays any COBRA premiums for coverage from April 1, 2021 to September 30, 2021, the individual must receive a refund no later than 60 days after the date of the payment. A tax credit may still be claimed for such refunds.
Employers should take the following actions in order to comply with ARPA:
- Compile a list of all employees who were involuntarily terminated or had their hours reduced and became eligible for COBRA coverage in the 18 months prior to April 1, 2021 (i.e., back to November 2019), including those who did not elect COBRA and those who elected but then discontinued coverage.
- Obtain the DOL’s model notice for COBRA continuation coverage election.
- Ensure that plan administrator send the notices to qualified beneficiaries by May 31, 2021.
- Obtain the DOL’s model notice to notify qualified beneficiaries when the COBRA subsidy will end.
We will continue to monitor and report on any new developments regarding the ARPA COBRA subsidies.