American Recovery Plan Provides COBRA Subsidies: Deadline of Certain COBRA Notices of May 31st is Approaching!

As you may know, COBRA requires that private employers with 20 or more employees with employer-sponsored group health plans to provide eligible individuals with continuing health care coverage after an involuntary termination or reduction in hours. Some states, including Massachusetts and New Hampshire, have mini-COBRA statutes that require employers of 19 or less employees with such health plans to also provide continuing coverage. On April 1, 2021, President Biden signed into law the American Rescue Plan Act of 2021 which created a 100% employer-paid subsidy for COBRA coverage premiums from April 1st through September 30, 2021.

While COBRA continuing benefits are normally an expense paid by the employee, the Act requires employer payment of continuing health care coverage to eligible employees for the above-referenced time period. An eligible individual is one who is a COBRA-qualified beneficiary and eligible for COBRA continuing coverage due to an involuntary termination or reduction in hours, so long as the termination was not for “gross misconduct.”

The ARPA also applies to employers in states with mini-COBRA statutes (Massachusetts and New Hampshire!). See American Recovery Plan, Public Law 117-2, Section 9501(a)(9)(B). Employees who previously did not elect COBRA coverage, or who may have dropped coverage may enroll or re-enroll. This subsidy will cover an employee’s medical, dental and vision plans, but not certain other plan.

Employers will obtain reimbursement for this subsidy payment through a payroll tax credit, but how this will occur has not yet been detailed in the available guidance. This COBRA premium assistance applies to “all group health plans sponsored by private-sector employers or employee organizations (unions) subject to COBRA Rules under the Employee Retirement Income Security Act of 1974 (ERISA). They also apply to plans sponsored by State or local governments subject to the continuation provisions under the Public Health Service Act. See U.S. Department of Labor.

The Act also requires employers to provide written notices to employees:

• A general notice of COBRA premium assistance to qualified beneficiaries who incur an involuntary termination of employment or a reduction in hours between April 1, 2021 and September 30, 2021.
• For a qualified beneficiary whose qualifying event occurred prior to April 1, 2021 and did not elect COBRA continuing coverage prior to that date or who did not enroll, a notice of a special COBRA election and whose maximum COBRA election period (typically 18 months) has not expired, which generally means qualifying events prior to October 1, 2019. This notice is required by May 31, 2021. An employer is not required to send notice of the special extended COBRA election period to individuals who do not satisfy the criteria listed above.
• Notice of expiration of COBRA premium assistance, including advance notice of when premium assistance will expire, expiration date, and eligibility for continued COBRA coverage paid by the COBRA beneficiary. This notice must be provided 15-45 days before the individual’s premium assistance expires.

Employers may be subject to excise taxes for failing to satisfy the COBRA continuation requirements and it could be as much as $100 per day per qualified beneficiary, but no more than $200 per day per family for each day that the employer violates COBRA regulations. Model notices issued by the Department of Labor may be obtained at https://www.dol.gov/agencies/ebsa/laws-and-regulations/laws/cobra/premium-subsidy.