If you are an employer who offers employee benefits and have terminated individuals, or if you have had employees with a reduction of hours within the last 17 months, it is important to learn more about the COBRA provisions of The American Rescue Plan Act of 2021. President Biden signed ARPA into law on March 11, 2021 and it provides a 100% COBRA subsidy for certain individuals, referred to as “Assistance Eligible Individuals” (AEI) beginning on April 1 through September 30, 2021, and it is important that you are aware on how it may affect your business.
What is COBRA?
Before we dive into the new legislation and how it affects employers and eligible participants (also referred to as “qualified beneficiaries”), it is important to briefly explain “What is COBRA?” COBRA is a federal law that requires employers to offer continuation of their health and welfare benefit plans if the employee has a qualifying event, such as termination or reduction of hours. If the individuals accept COBRA, he/she traditionally will pay 102% of the premium for elected coverages and can have continuation of coverage up to 18-36 months, depending on the situation. COBRA is generally administered by the employer or outsourced to a third-party administrator.
Some states have “mini-COBRA” laws, such as Cal-COBRA, which applies to employers with 2-19 employees. Not all states have mini-COBRA laws. If an eligible participant elects Cal-COBRA, he/she will traditionally pay 110% of the premiums for elected coverages. Cal-COBRA is generally administered by the carrier. We are awaiting further guidance on the implications of ARPA on the mini-COBRA administration.
Who is Eligible for the COBRA Subsidy?
Based on information found on the Department of Labor website and a page created specific to the COBRA subsidy, only certain “Assistance Eligible Individuals,” referred to “AEIs” are eligible for the COBRA subsidy and they may include:
• Individuals who were involuntarily terminated or had a reduction of hours, therefore no longer eligible for coverage during the subsidy period of April 1 through September 30, 2021.
• Individuals who were involuntarily terminated or had a reduction of hours, who previously did not elect COBRA or allowed their COBRA to lapse, and who have not exhausted their maximum 18 months of coverage. These individuals will have a “second chance” to elect COBRA.
• Includes spouse and dependent children, who are qualified beneficiaries.
There are individuals who are NOT eligible for the COBRA subsidy and may include:
• Individuals who voluntarily resigned employment.
• Individuals who are eligible for other group coverage, such as a new employer’s group plan or spouse’s group plan.
• Individuals who are eligible for Medicare.
• Individuals who have used the maximum period of COBRA coverage.
• If an employer cancelled their group plan, there is no COBRA subsidy available.
The COBRA subsidy is NOT automatic. Individuals who are eligible, who previously did not enroll in COBRA or Cal-COBRA must elect within 60 days of the notice from the group’s plan administrator. The group administrator must provide the notice no later than May 31, 2021. If the AEI does not elect COBRA within the 60-day period upon notification, the subsidy is forfeited.
Who is paying for the COBRA subsidy?
• If the employer has 20 or more employees, either fully insured or self-funded, the employer is responsible for the 100% COBRA subsidy and the 2% COBRA administration fees.
Tax credits will be issued to the employer or the insurer, against the quarterly Medicare taxes. If the credit exceeds the premium, a refund will be available. There is a provision of the law that limits the ability to take the tax credit for premium subsidy if the employer is also taking the tax credit for qualified health plan expenses under FFCRA paid leave provisions or Employee Retention Credit under the CARES Act. We are awaiting more guidance from the IRS on the mechanics. There will not be any “double dipping.”
Penalties for non-compliance
The Department of Labor will be monitoring for compliance on The American Rescue Plan Act.
• Employers may be subject to an excise tax under the Internal Revenue Code for failing to satisfy the COBRA continuation coverage requirements. This tax can be as much as $100 per qualified beneficiary, but not more than $200 per family for EACH DAY the employer is in violation of the COBRA rules.
• Individuals who become eligible for other group health plan coverage or Medicare are required to notify their plan administrator. If they do not notify the plan administrator, the penalty can be the greater of $250 or 110% of the amount of the subsidy. However, regulations state that a person will not be subject to a penalty if the failure to notify the employer/health plan is due to reasonable cause and NOT due to willful neglect.
What are the Next Steps for An Employer?
1. Identify individuals who have been terminated or had a reduction in hours since October 2019.
2. Make sure you have employee records and documentation for your voluntary vs. involuntary terminations, as this makes a difference with COBRA subsidy eligibility.
3. New Model Notices and FAQ were released on April 8 for COBRA by the Department of Labor and can be found on the DOL.gov website.
a. General Notice and Election Notice
b. Notice in Connection with Extended Election Period
c. Alternative Notice (special notice for mini-COBRA/Cal-COBRA)
d. Notice of Expiration of Premium Assistance – NEW
e. Summary of the COBRA Premium Assistance Provision
4. If you outsource your COBRA administration, coordinate with the TPA to ensure the notices are sent to qualified beneficiaries.
5. Make sure you properly reinstate the participants electing the COBRA subsidy with the carriers.
6. As of April 15, 2021, it is still unclear how the employers with Cal-COBRA new alternative mini-COBRA notices will be distributed, as Cal-COBRA is generally administered by the carriers. We are awaiting further regulation and details from the carriers. Stay tuned as more information becomes available.
If you are an employer offering group health benefits, it is important to take the time to make sure your group plans are compliant with the new COBRA provisions under the new law, The American Rescue Plan Act of 2021. Make sure the proper, NEW model notices have been updated and distributed, and make sure you document, document, document!
If you have any questions regarding The American Rescue Plan Act and the COBRA subsidy, please contact MNJ Insurance Solutions at (714) 716-4303 for more information.
This content is provided for informational purposes only. While we have attempted to provide current, accurate and clearly expressed information, this information is provided “as is” and MNJ Insurance Solutions makes no representations or warranties regarding its accuracy and completeness. The information provided should not be construed as legal or tax advice or as a recommendation of any kind. External users should seek professional advice form their own attorneys and tax and benefit plan advisers with respect to their individual circumstances and needs.
