While many benefits consultants are struggling to understand the changes to COBRA resulting from updated guidance related to the Outbreak Period, substantial changes to COBRA are just around the corner.
This next round of changes is codified in the American Rescue Plan of 2021 (ARP), the newest in a series of major stimulus acts designed to stabilize our economy amid the COVID-19 pandemic. The ARP allocates $10 billion of its $1.9 trillion to fully fund six (6) months of COBRA coverage for certain qualified beneficiaries.
The COBRA subsidies will be available to fund the entire COBRA premium (including the 2% administration fee) for certain qualified beneficiaries for the time period from April 1, 2021 through September 30, 2021. In most cases, the subsidy will apply to the medical, dental or vision policy that a qualified beneficiary was enrolled in at the time of their original qualifying event. However, employers may elect to offer less expensive plan options that are offered to other similarly situated active employees.
Eligibility
To be eligible for the subsidy, an individual must be eligible for COBRA because of an involuntary termination of employment or reduction in hours. The subsidy remains available as long as: (1) the qualified beneficiary does not become eligible for coverage under an employer-sponsored plan or Medicare, and (2) the qualified beneficiary is still in their original 18-month COBRA coverage period.
For example, if Carol lost her job in January 2020 and her coverage lasted until the end of the month, she would first be eligible for COBRA on February 1, 2020. Her 18-month COBRA eligibility period would run from February 1, 2020 through July 31, 2021. As a result, she would only be able to receive four months’ worth of the COBRA subsidy because she would not be eligible for COBRA after July 31, 2021.
Notably, the ARP subsidy does not require COBRA coverage to be continuous and provides qualified beneficiaries with a second opportunity to elect coverage. In our example regarding Carol, let's assume that she did not elect COBRA initially and does not wish to elect coverage for the period from February 1, 2020 through March 31, 2021. Under the new rules, Carol is permitted to elect COBRA effective April 1, 2021. She does not need to pay for coverage for the period from February 1, 2020 through March 31, 2021 to take advantage of the subsidy.
Also noteworthy, this new election right would also apply if Carol had elected coverage for several months following her original election date and subsequently dropped that coverage.
Notice Requirements
Under the new provisions, plan sponsors must still notify all qualified beneficiaries within what would otherwise be their 18-month coverage period of their right to elect coverage effective April 1, 2021. A model notice for this purpose will be issued by the DOL within 30 days and must be sent to qualified beneficiaries by May 31, 2021.
This notice must include:
The forms necessary to elect coverage;
The name, address, and telephone number to contact the plan administrator and any other person maintaining relevant information in connection with such premium assistance;
A description of their right to elect coverage effective April 1 at any time during the 60 days following the date of the notice;
A description of the obligation to notify the plan if they become ineligible for the subsidy (i.e., because they become eligible for coverage through a new employer); and
A prominently displayed statement regarding the right to subsidized coverage.
A second notice is required to be sent to any individual who elects the subsidized coverage and will remain eligible for COBRA after the subsidy period ends. This notice, which must be sent between August 16, 2021 and September 15, 2021, must explain when the subsidy will expire.
Payments
Under the new rules, qualified beneficiaries will not be required to make any COBRA premium payments during the subsidy period. (For this purpose, “premiums” include any administrative fees.) Instead, plan sponsors will be required to pay any applicable premiums. These employers will then be “reimbursed” through a refundable payroll tax credit. Essentially, this means that employers can forgo any applicable payroll tax deposits to pay themselves back. If the value of the COBRA subsidy exceeds the amount the employer owes in payroll taxes, they can apply for an immediate “refund” for the balance of the amount due.
What’s Next?
Model notices and guidance from the Department of Labor on these new rules are expected soon—including information on how these subsidy rules will interact with the Outbreak Period rules.
Savoy will continue to carefully monitor these developments and provide additional guidance when it becomes available.
If you have any questions, please contact your Ascela Sales Team.