To read OMLO’s initial alert describing how the American Rescue Plan Act of 2021 (ARPA) provides for temporary premium assistance for Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) continuation coverage, please click here.
COBRA Subsidy Requirement
The ARPA requires a 100% COBRA subsidy for certain individuals beginning April 1, 2021, through September 30, 2021. This subsidy requirement generally applies to group health plans that are subject to the COBRA provisions found in the Employee Retirement Income Security Act, Internal Revenue Code or the Public Health Service Act. This includes private employers as well as non-federal governmental plans. State laws that provide comparable continuation coverage are also subject to the ARPA’s subsidy requirement and the insurer generally will be responsible for the subsidy—though it remains to be determined what is deemed “comparable.” The employer/plan sponsor is responsible for covering the cost of the COBRA subsidies for fully insured and self-insured group health coverage. For state COBRA-like continuation laws, the insurers will be responsible for the subsidies. For other plans, “the entity to whom the premium is due” is the responsible entity.
Eligibility
Certain individuals are eligible for a 100% subsidy for the cost of the COBRA premium, up to 102% of the cost of coverage. These individuals generally include employees and their families who have lost health coverage under an employer’s plan and are subsequently offered COBRA due to: (1) an involuntary termination of employment; or (2) reduction in hours for any reason. These individuals are referred to as Assistance Eligible Individuals (AEIs) and by definition cannot be eligible for other group health coverage or Medicare in order to remain subsidy eligible. Individuals who are ineligible for a COBRA subsidy include those individuals that received COBRA offers due to either: (1) voluntary termination of employment; (2) divorce/legal separation; (3) death of the employee; or (4) ceasing to be eligible under the plan, such as their dependent reaching the age of 26.
Important Notices and Elections
Employers and providers should be aware of the important notices and elections they need to distribute to any of their Qualified Beneficiaries requesting the COBRA subsidy. There are three notices along with a “Summary of COBRA Premium Assistance Provisions under the American Rescue Plan Act of 2021” that apply to plans subject to federal COBRA: (1) ARPA General Notice and Summary, must be sent to COBRA Qualified Beneficiaries who have any qualifying event between April 1, 2021, and September 30, 2021; (2) Notice in Connection with Extended Election Periods and Summary, must be sent to COBRA Qualified Beneficiaries who had a reduction in hours or involuntary termination prior to April 1, 2021, and whose COBRA maximum duration period extends into the subsidy window. This includes existing Qualified Beneficiaries and those individuals who declined or dropped COBRA. These notices must be provided by May 31, 2021; (3) Notice of Expiration of Period of Premium Assistance, must be sent to individuals receiving the subsidy between 15 – 45 days before the subsidy expires. This includes loss of the subsidy on expiration of the maximum coverage period. For plans subject to state continuation coverage provisions (e.g., “mini-COBRA”), the insurer will be responsible for notice distribution. The DOL’s sample notices are available here.
Reimbursement of COBRA Premiums
An employer may claim a dollar-for-dollar reimbursement of the COBRA premiums paid to AEIs. The credit is allowed against federal employment taxes imposed on employers on all wages and compensation paid to employees, with a five-year limitation period on claiming the tax credits.
Penalties for Not Complying
Employers should be aware of potential penalties that may be imposed for not complying with the COBRA subsidy requirement or improperly denying an AEI’s request for the subsidy. Specifically, these employers may be subject to an excise tax under the Internal Revenue Code for failing to satisfy the COBRA continuation coverage requirements. This tax could be as much as $100 per qualified beneficiary, but not more than $200 per family, for each day that the plan or employer is in violation of the COBRA rules.
Special Districts and Other Public Entities
Special Districts and other public entities which include an elected board of officials should note that the abovementioned COBRA subsidy applies to their operations. Elected officials who were not reelected, and involuntarily lost coverage as a result during the retroactive window (back to November 1, 2019) may be eligible for the subsidy, effective April 1, 2021, assuming they do not have other group coverage or Medicare eligibility. Those who chose not to run for reelection, however, would not be eligible.
OMLO will continue to monitor these developments carefully. This article is for informational purposes only and only provides an overview of specific developments. It is not intended to be, and should not be construed as, legal advice for any particular fact situation. For actual legal advice and specifics pertaining to your governmental entity, please contact your OMLO attorney for assistance.