If you have group health clients, you’re probably receiving calls from them asking about the new COBRA subsidy created by the American Rescue Plan Act. President Biden’s $1.9 trillion COVID relief bill provides a 100% subsidy for up to six months of the COBRA or state continuation premiums for eligible employees, former employees, and their covered family members. While that’s certainly a good thing for those who qualify, it’s creating headaches for employers and plan administrators. In this post, we’ll try to get you started and help answer some of the most important questions about the subsidy. There’s still some confusion about how this will work, so we won’t be getting too “in the weeds.”
The Disclaimer: As you review this information, please keep in mind that this is simply a general overview of the new law, which may create additional compliance requirements for many of your clients. It is not meant to be comprehensive in nature, nor is it intended to provide legal advice. You will need to do some research on your own before advising clients, and we would suggest that you refer clients with detailed questions to their legal counsel or a third-party COBRA administrator who can help them with the requirements of this new law.
Which employer groups are impacted by the new subsidy?
The short answer is many. Any employer that is required to offer COBRA or state continuation is subject to the new rule and will need to identify and notify qualified beneficiaries about their potential eligibility for the subsidy.
As explained in the Department of Labor’s publication An Employer's Guide to Group Health Continuation Coverage Under COBRA, most companies with 20 or more employees are subject to the federal COBRA law. All employees count when determining a company’s COBRA status, including both full- and part-time employees, whether eligible for the group health plan or not. Part-timers count as a fraction of a full-time employee based on the number of hours they work. When two or more companies are under common ownership, the employee count must be combined to determine whether the separate companies are subject to COBRA. COBRA normally lasts for 18 months if an employee and his or her covered dependents lose group medical, dental, or vision coverage due to termination of employment or a reduction in work hours. For dependents who lose their coverage as a result of the employee’s death, divorce or legal separation, the employee’s enrollment in Medicare, or a dependent aging off of the plan, COBRA can last for up to 36 months.
In many states, there is a form of “mini COBRA” called state continuation that applies to fully-insured employers with fewer than 20 employees. The eligibility rules, as well as the continuation timeframe, vary by state and in some states, people are eligible for state continuation after their COBRA continuation period expires.
Self-insured or level-funded employers with fewer than 20 employees normally are not subject to either COBRA or state continuation and therefore would not be impacted by the new COBRA/continuation subsidy.
How long does the subsidy last?
The premium subsidy is available for up to six months, beginning April 1, 2021, and ending September 30, 2021, according to a DOL FAQ document about COBRA premium assistance under ARPA. Because the availability of the subsidy does NOT extend COBRA or state continuation beyond the original maximum coverage period, the subsidy can end before September 30, 2021, if COBRA or state continuation expires before then.
Who is eligible for the new subsidy?
Those who lost their health coverage involuntarily or experienced a reduction in hours, and whose COBRA or state continuation period overlaps—or would overlap if elected—any portion of the six-month subsidy period may be eligible. Involuntary loss of health coverage means that the employee did not quit their job; the FAQ document says that “Individuals may be eligible for premium assistance if they are eligible for and elect COBRA continuation coverage because of their own or a family member’s reduction in hours or an involuntary termination from employment.” The same would apply to individuals eligible for continuation of their group health coverage under “comparable state continuation coverage (“mini-COBRA”) laws.”
Again, the subsidy pays 100% of the COBRA or state continuation premium for the employee or former employee and any family members who were covered on the plan at the time coverage was lost.
If the individual is eligible for Medicare or other group coverage, either through a new job or through a spouse’s employer, whether or not that coverage was elected, then the subsidy would not be available. In the DOL’s words, “you are not eligible for the premium assistance if you are eligible for other group health coverage, such as through a new employer’s plan or a spouse’s plan (not including excepted benefits, a qualified small employer health reimbursement arrangement (QSEHRA), or a health flexible spending arrangement (FSA)), or if you are eligible for Medicare.”
Those who accept the subsidy and then become eligible for other coverage during the six-month subsidy period must notify the employer or face a penalty of $250, or the greater of $250 or 110% of the subsidy amount if the failure to notify was intentional.
Who pays for the subsidy?
For COBRA groups, the employer pays the COBRA premium for eligible employees, former employees, and family members and then takes a payroll tax credit to recoup the cost of these COBRA premiums. For state continuation groups, it appears the insurer may cover the cost and await reimbursement from the federal government. UnitedHealthcare has a nice chart on its website explaining how payments and tax credits work.
What are the notice requirements for the employer?
As we learn from the Notice of the availability of the model health care continuation coverage notices published in the Federal Register, affected employers must identify individuals who might be eligible for the subsidy and then send them various notices during the subsidy period.
- COBRA: Employers might need to look back to employees whose coverage was involuntarily terminated in October, 2019, since a portion of their 18-month COBRA coverage period would overlap with the subsidy period.
- State Continuation: The look-back timeframe for state continuation will depend on the continuation period offered in each state and whether the state modifies its enrollment rules to allow people who previously did not sign up for continuation to enroll and apply for the subsidy.
Assistance Eligible Individuals (AEIs) must be sent a notice to let them know of their potential eligibility for a subsidy, and there’s another notice that’s required when the subsidy is nearing its end.
Notice, Election, and Coverage Timeframes
Again, the subsidy can last for up to six months, beginning April 1, 2021. That means that there are some short timeframes for the employer to send out the required notices and the AEIs to apply for the subsidy, all of which are detailed in the Notice published in the Federal Register.
- The employee notice must be provided to potentially eligible individuals by May 31, 2021.
- The eligible individual would then have 60 days from receipt of the notice to elect to receive the subsidy.
- COBRA coverage and premium assistance elected during this extended period begins April 1, 2021 (or such later date on which an individual first becomes eligible), even when elected after such date.
Where can employers get more information?
This is an important question because, as an insurance agent, you should be careful about how much advice you provide to your clients about the COBRA subsidy. It’s ok, though, to provide your clients with some general information and then point them in the right direction.
One great source of information will be the carriers. Each insurer is likely working with its legal department to craft a message for affected employers. Some insurers may even prepare the communication that state continuation groups need to send to their employees. It’s worth asking your carrier partners if they have any information that you can share with your group clients.
It’s also ok to share official guidance from the federal or state government with your clients. Here are a few great resources:
- Summary of COBRA Premium Assistance Provisions under the American Rescue Plan Act of 2021
- COBRA Premium Assistance under the American Rescue Plan Act of 2021 FAQs
- General COBRA FAQs for Employers
Finally, it’s not a bad idea to recommend that your clients outsource their COBRA notice requirements to a third-party claims/COBRA administrator (TPA). Find one or two that you trust and share their information with your clients. This will help make sure they are compliant and reduce the number of calls that you’ll have to field on this topic.
On Monday, April 26th at 2 PM Eastern, the Department of Labor be hosting a live webinar to discuss who is an assistance eligible individual, the duration of the premium assistance, the extended election period, the notice requirements, and other provisions. You may register at: https://broadcaster-audience.mediaplatform.com/#/event/607dc46ac0aea403816ee15b/registration