The American Rescue Plan Act (“ARPA”) made a full subsidy for six months of premiums available to COBRA-eligible individuals whose employment was involuntarily terminated or who lost coverage due to a reduction in hours. Between this subsidy program and the further extension of the COBRA notice, election, and premium payment deadlines under Department of Labor (“DOL”) and IRS guidance issued in February, health plan sponsors and administrators are contending with a number of COBRA compliance challenges at the moment.
Model Notices and FAQs
The DOL’s Employee Benefits Security Administration (“EBSA”) recently released its model notices for the COBRA subsidy, which is in effect from April 1 to September 30 of this year. Employers that sponsor group health plans may use these new model notices to meet the two special COBRA subsidy notice requirements: an initial notice must explain the availability of subsidized COBRA coverage and a second notice must remind recipients of subsidized coverage of the date the subsidy will expire. The deadline for sending the initial notice is:
May 31 for each subsidy-eligible COBRA qualified beneficiary who lost coverage before April 2021.
The normal deadline for sending a COBRA election notice (determined without regard to the pandemic-related COBRA deadline extensions) for COBRA qualified beneficiaries who lose coverage during the subsidy period. For this group, the subsidy information may be included in, or as a supplement to, the standard COBRA election notice. The preamble to the model notices indicates that an election notice that includes information about the subsidy should be sent to all COBRA qualified beneficiaries who lose coverage during the subsidy period, including those who are not eligible for the subsidy.
The subsidy expiration notice must be sent no later than 15 days, and no earlier than 45 days, before the individual’s COBRA subsidy is scheduled to expire.
In addition to the model notices, the DOL issued a summary and a set of FAQs about the COBRA subsidy . That guidance clarifies that subsidy-eligible COBRA qualified beneficiaries who lost coverage before April 2021 may obtain coverage beginning in April 2021 even if they do not elect to pay for retroactive coverage for the period from their loss of coverage through March 2021. The guidance also clarifies that pandemic-related COBRA deadline extensions do not apply to the notice and election period deadlines related to the COBRA subsidy.
COBRA Subsidy Requirements
Under the COBRA subsidy, employers that sponsor group health plans subject to federal COBRA requirements must provide fully subsidized COBRA coverage beginning in April 2021 to employees or former employees (and their dependents) who lost group health coverage as the result of either an involuntary termination or a reduction of hours and whose maximum COBRA coverage periods (determined without regard to failure to enroll or pay premiums) overlap with the subsidy period. Subsidized coverage is available until the earliest of September 30, 2021; the end of the maximum COBRA coverage period; or the date the individual becomes eligible for other group health coverage or Medicare. State COBRA coverage requirements are taken into account in determining the length of the maximum COBRA coverage period for this purpose. (The subsidy is available for periods of continuation coverage mandated under state “mini-COBRA” laws as well as federal COBRA.) Employers can get a tax credit against Medicare payroll taxes for the premium payments they make on behalf of individuals eligible for the COBRA subsidy.
Next Steps
Employers should work with their third-party administrators to send the required COBRA subsidy notices as soon as possible. The notices, and the COBRA subsidy generally, will likely present tricky administrative issues. For example:
It may be difficult or impossible to determine the length of former participants’ maximum COBRA coverage periods given that the COBRA deadline extensions applied to the deadlines by which individuals must notify a plan of a disqualifying event (such as divorce or end of dependent status) or disability determination. We recommend that employers send a notice explaining the COBRA subsidy to anyone who may be eligible and then attempt to confirm eligibility when an individual elects to enroll in coverage.
So far, EBSA has failed to provide guidance defining an involuntary termination of employment for purposes of eligibility for the COBRA subsidy. As a result, plan sponsors need to weigh the pros and cons of offering subsidized coverage to former employees who maintain (or could maintain) that their employment was constructively terminated. If such individuals are excluded from eligibility under future guidance, plan sponsors will not be able to claim a tax credit for their subsidized premiums. On the other hand, if such individuals are not offered subsidized coverage and are deemed eligible under future guidance, plan sponsors risk becoming subject to monetary penalties and litigation.
The subsidy expiration notice deadline (no later than 15 days before the subsidy expires) may be difficult to meet with respect to anyone whose maximum COBRA coverage period ends only a month or two into the subsidy period.
After working through the COBRA subsidy notice requirements, plan sponsors should:
Consider whether and when to send notices explaining the extended COBRA enrollment and premium payment deadlines that apply under the further pandemic-related extension announced in February, under which COBRA deadlines are tolled until the earlier of (i) one year from the date the deadline would have occurred in the absence of any extension or (ii) 60 days after the official end of the national emergency (which has not yet been announced).
Consider updating plan documents and other plan communications to reflect the COBRA subsidy and deadline extensions.
Check separation agreements to see whether the language regarding post-termination benefit continuation aligns with the new COBRA subsidy obligations.
Carefully consider the proper amount of the subsidy if the plan offers COBRA-equivalent coverage for domestic partners (because domestic partners are not COBRA qualified beneficiaries).
As noted in a previous post, COBRA notices seem to be emerging as a popular target for plaintiffs’ lawyers. Plan sponsors should pay close attention to the numerous administrative challenges presented by the COBRA subsidy and deadline extensions, as plaintiffs’ lawyers may be waiting to take advantage of any missteps.