85% COBRA Subsidy Passes House
The House recently passed the $1.9 trillion American Rescue Plan Act of 2021 (ARPA). The Senate intends to take action on the bill by March 14, when unemployment aid programs expire.
Included among the many COVID-19 relief provisions is a COBRA subsidy structure designed to provide an 85% COBRA subsidy to employees and family members losing group health plan coverage due to an involuntary termination of employment or reduction in hours. Assuming the bill is enacted in its current form by the end of March, the subsidy would begin April 1, 2021 and run through September 30, 2021.
Individuals Eligible for COBRA Subsidies
Employees and other qualified beneficiaries who experience a COBRA qualifying event caused by an involuntary termination of employment (i.e., not including a voluntary termination of employment) or reduction in hours and elect COBRA coverage for some or all of the period from April 1, 2021 through September 30, 2021.
The 85% subsidy amount leaves a balance payable by the employee or other qualified beneficiary of 15% of the applicable COBRA premium.
Note: The subsidy is not available for health FSA COBRA coverage.
The COBRA subsidy period extends from April 1, 2021 (assuming March enactment) through September 30, 2021.
Employees and other qualified beneficiaries eligible for the subsidy will have their access to subsidies cut short prior to September 30 if any of the following occur:
- The individual becomes eligible for other group health plan coverage (not including excepted benefits such as dental/vision/EAP, health FSA, HRA, QSEHRA, or Medicare); or
- The end of the COBRA maximum coverage period.
Employee Loss of Subsidy Eligibility Notification Requirement
COBRA subsidy recipients must notify the plan when they lose eligibility for the subsidy because they have become eligible for other group health plan coverage. ARPA directs the DOL to issues guidance specifying the time and manner of such notice.
An employee or other COBRA subsidy recipient’s failure to timely notify the plan of loss of eligibility for the subsidy is subject to a penalty of $250 for each failure. The penalty can increase to 110% of the amount of the subsidy received after loss of eligibility if the failure results from fraud. There is also an exception providing no penalty will apply for failure due to reasonable cause and not to willful neglect.
Employers May Permit Medical Plan Option Changes
The standard COBRA rules provide that qualified beneficiaries can only elect to continue the coverage in effect at the time of the qualifying event except in a few specific circumstances.
- For more details, see: Changing Plan Options Under COBRA
Under the special ARPA rules, employers may permit employees and other qualified beneficiaries eligible for COBRA subsidies to change their medical plan option without losing their right to the COBRA subsidies. To qualify, the new plan option premium cannot exceed the premium of the original plan option at the time of the COBRA qualifying event, the new plan option must be available to similarly situated active employees, and the qualified beneficiary must elect the plan option change within 90 days of receiving notice of the ability to make such change.
Extended Election Period
For employees and other qualified beneficiaries who do not have COBRA coverage in effect as of April 1, 2021 but would be eligible for subsidies if they had elected COBRA, ARPA provides a special opportunity to elect COBRA effective as of April 1, 2021. This includes qualified beneficiaries who never elected COBRA or elected COBRA but discontinued coverage (for a reason other than reaching the end of the maximum coverage period) prior to April 1, 2021.
These individuals have 60 days from the date of receiving notice of this extended election period to make the COBRA election. COBRA coverage under this special extended election provision will be effective as of April 1, 2021 and will not extend beyond the standard maximum coverage period as would have applied based on the original qualifying event.
For example, an employee who was involuntarily terminated and lost coverage as of July 1, 2020 but never elected COBRA could now choose to elect COBRA as of April 1, 2021 through December 31, 2021.
Review of Subsidy Denials
Employees or other qualified beneficiaries who are denied COBRA subsidies may appeal the determination to the DOL for a determination within 15 business days of receipt.
COBRA Subsidy Notices
COBRA notices must include provisions including the availability of subsidies and, if offered, the ability to change plan options.
Specific content requirements:
- The forms to establish eligibility for subsidies;
- The name, address, and phone number to contact the employer or other person who can provide assistance and further information;
- A description of the extended election period;
- A description of the individual’s obligation to notify the plan of loss of eligibility for the subsidies, and the potential penalties for failure to do so;
- A prominently displayed description of the right to subsidies and the conditions to qualify; and
- If permitted by the employer, a description of the option to enroll in a different plan option.
Individuals eligible for the extended election period must receive an additional notice including this information by May 31, 2021 (assuming March enactment).
ARPA tasks the DOL with creating model notices for these purposes within 30 days of enactment.
Expiration of COBRA Subsidy Notices
No more than 45 days and no less than 15 days in advance of the expiration of COBRA subsidies, subsidized qualified beneficiaries must receive a notice that the subsides will expire soon and specifying the date of expiration. The notice must also state that the individual may be eligible for coverage without subsidies through standard COBRA or another group health plan.
This expiration notice does not apply where the loss of subsidies is caused by the employee becoming eligible for other group health plan coverage or exhausting the maximum coverage period.
ARPA tasks the DOL with creating model notices for these purposes within 45 days of enactment.
Employer and Carrier Tax Credits
Employers of self-insured plans and insurance carriers of fully insured plans will be eligible for tax credits to cover the cost of these COBRA subsidies made available through ARPA.
Outbreak Period One-Year Maximum
On a separate note, the Department of Labor (DOL), in coordination with the IRS and HHS, recently issued guidance clarifying the one-year maximum duration of still-ongoing Outbreak Period.
The full guidance is available here:
- EBSA Disaster Relief Notice 2021-01: https://www.dol.gov/sites/dolgov/files/ebsa/employers-and-advisers/plan-administration-and-compliance/disaster-relief/ebsa-disaster-relief-notice-2021-01.pdf
Under this new guidance, the maximum period that must be disregarded for each specific event during the Outbreak Period is the earlier of:
- One year from the date the individual was first eligible for relief under the Outbreak Period; or
- 60 days from the announced end of the National Emergency (the end of the Outbreak Period)
Joint Notice Background
These Outbreak Period rules originally came from the Joint Notice last April in response to President Trump’s March 13, 2020 Proclamation on Declaring a National Emergency Concerning the Novel Coronavirus Disease (COVID-19) Outbreak, and by separate letter a determination invoking a nationwide national emergency determination under Stafford Act beginning March 1, 2020 as a result of the COVID-19 outbreak (collectively, the “National Emergency”). FEMA issued emergency declarations for every state, territory, and possession in the U.S as a result of the pandemic that continue in effect today.
In light of the National Emergency, the Departments stated that employers, employees, and dependents may have difficulty meeting standard timeframes with respect to HIPAA, COBRA, and claims. The new Outbreak Period rules extend certain of those timeframes to assist employers and employees in the process of maintaining employer-sponsored group health plan coverage.
For full details:
- Major Employee Benefits Timeframe Extensions Announced for National Emergency
- ABD Office Hours: 2020 Year in Review (Slides 36-43)
Timeframe Extensions Disregarded During the “Outbreak Period”
The extensions of employee and dependent timeframes apply with respect to the period from March 1, 2020 until 60 days after the announced end of the National Emergency period (or a later date announced in subsequent guidance). That period is referred to in the rules as the “Outbreak Period.”
This new DOL guidance clarifies that statutory limitations impose restrictions on the Departments’ ability to disregard timeframes beyond one year. Therefore, the guidance confirms that in no case will a disregarded period under the Outbreak Period exceed one year.
DOL Examples Highlighting One-Year Maximum
- A COBRA qualified beneficiary would have been required to make a COBRA election by March 1, 2020 under the normal timeframes.
- The ongoing Outbreak Period delays the COBRA election deadline from March 1, 2020 through February 28, 2021, which is the one-year maximum.
- A COBRA qualified beneficiary would have been required to make a COBRA election by March 1, 2021 under the normal timeframes.
- The Outbreak Period delays the COBRA election deadline until the earlier of one year from that date (i.e., March 1, 2022) or the end of the Outbreak Period.
Note that if enacted, the ARPA COBRA subsidy provisions described above would provide separate extended election periods for qualified beneficiaries eligible for premium assistance.
President Biden is urging the Senate to take “quick action” by passing ARPA, stating that “we have no time to waste.” The bill includes many key pandemic-related provisions, including $1,400 relief payments and extended unemployment benefits. It therefore appears likely that some form of the ARPA will pass the Senate and be signed into law by the end of the month.
For those of us who remember the 65% ARRA COBRA subsidies that extended 15 months from 2008-2010 during the Great Recession, it’s almost like déjà vu all over again. However, the enhanced 85% subsidy in ARPA includes a number of different approaches that, if enacted, will require significant attention from employers and their COBRA TPAs.
Disclaimer: The intent of this analysis is to provide the recipient with general information regarding the status of, and/or potential concerns related to, the recipient’s current employee benefits issues. This analysis does not necessarily fully address the recipient’s specific issue, and it should not be construed as, nor is it intended to provide, legal advice. Furthermore, this message does not establish an attorney-client relationship. Questions regarding specific issues should be addressed to the person(s) who provide legal advice to the recipient regarding employee benefits issues (e.g., the recipient’s general counsel or an attorney hired by the recipient who specializes in employee benefits law).