On March 11, 2021, President Biden signed into law the American Rescue Plan Act (ARPA). Among other provisions, the new law provides a premium subsidy to eligible employees under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). While employers with twenty (20) or more employees must offer continuation coverage to eligible employees, the employee typically pays all of the premium. However, the ARPA has created a temporary COBRA premium subsidy that requires employers to cover an eligible employee’s cost of continuing group health coverage.
The Basics of the New Subsidy
The ARPA requires employers to cover 100% of the employee’s cost of continuing group health coverage under COBRA for up to six (6) months. Those eligible to receive the COBRA subsidy include eligible employees and covered dependents who (a) are either already enrolled in COBRA, (b) did not elect COBRA when it became available to them, or (3) elected COBRA initially but let the coverage lapse. The ARPA COBRA subsidy period is between April 1, 2021 and September 30, 2021. The COBRA subsidy is available only to those whose initial COBRA period ends (or would have ended if COBRA had been elected/did not lapse) either during or after this six-month period.
This subsidy applies to all private-sector employer group health plans that are subject to the COBRA rules under the Employee Retirement Income Security Act of 1974 (ERISA). This subsidy also applies to plans sponsored by state or local governments subject to the continuation provision under the Public Health Service Act, and it also applies to group health insurance required under state mini-COBRA laws.
Employers’ New COBRA Notice Obligations
In addition to paying for the continuation coverage, employers must also comply with three new COBRA notice requirements:
- Special election notice: By May 31st, employers must provide qualifying employees with notice that they are eligible for the special election opportunity. The employee’s 60-day election period begins to run as soon as the employer provides the special election notice.
- Special Opt-In Notice: Employers also need to notify individuals who may have opted out of COBRA, or individuals that originally elected COBRA, but have since dropped coverage, so that they have the opportunity to opt back in.
- Subsidy Termination Notice: Employers generally will be obligated to notify employees no more than forty-five (45) days and no less than fifteen (15) days of the date on which their COBRA subsidies will expire.
The DOL has recently published model notices to assist employers with their notice obligations.
Employers Can Get Reimbursed for Subsidies Paid
While employers will bear the up-front cost of the COBRA subsidies, they will be eligible to get that money returned to them in the form of tax credits. An employer may claim reimbursement for the subsidies via credits toward payroll taxes that are otherwise due on a quarterly basis. But if the plan is fully insured and the employer is not subject to COBRA (e.g., the employer is too small), then the insurance company will be entitled to the credit.
DOL Issues Guidance on the COBRA Subsidy
On April 7, 2021, the DOL released answers to frequently asked questions (FAQs) related to the COBRA subsidy. One question that had been unclear from the ARPA language is how eligible individuals could get a COBRA subsidy if the employer does notify them of this benefit. According to the DOL, the individual can simply notify the employer of their request to be treated as an eligible individual for purposes of the subsidy.
The ARPA language is also vague about which health plan options individuals could utilize. DOL confirmed that COBRA participants can switch between coverage options offered by their employer, provided certain conditions are met. Individuals have ninety (90) days to elect to change their coverage after the employer provides the COBRA notice.
Additionally, the DOL guidance clarified that individuals who are eligible for the subsidy can switch from state or federal “Marketplace” health insurance coverage to COBRA continuation coverage. However, Marketplace coverage cannot be terminated retroactively. The DOL has indicated its desire to enforce these new subsidy rules and employers who violate the new COBRA subsidy rules may be subject to an excise tax of as much as $100 per qualified individual but not more than $200 per family for each day that the employer is in violation.
Action Items for Employers
There are several tasks employers should do now to help administer the subsidy. First, determine whether you have any individuals who are eligible for the COBRA subsidy and send them the required notice. Second, make sure you have a plan in place until the end of the subsidy period to capture new individuals that might become COBRA eligible and to offer them the subsidy. And lastly, loop your payroll and accounting departments into the process so they can request the appropriate tax credit when filing payroll tax returns. If this seems daunting, C2’s experienced HR and payroll professionals are here to assist in evaluating the applicability of COBRA subsidies and making sure your company is capturing the applicable tax credits.
C2 is a PEO that provides strategic HR outsourcing to clients who want to develop optimal workforce strategies and solutions to allow them to be more competitive and profitable. C2 blog posts are intended for educational and informational purposes only.