This week, Congress passed and the President signed the American Rescue Plan Act ("the Act"). Under the Act, the federal government will subsidize the COBRA premiums of certain individuals for six months. However, employers and COBRA administrators will shoulder much of the administrative burden relating to the subsidy. This client alert provides a high-level summary of the Act's COBRA subsidy provisions.
Which group health plans are affected by the subsidy? Employer-sponsored group health plans and multiemployer plans that provide or pay for medical care and that are subject to either federal COBRA or a state law requiring comparable continuation coverage. (In this client alert, we will refer to the federal and state laws collectively as "COBRA.") Medical, dental, and vision plans will all be affected. Health flexible spending account plans, longterm care plans, and qualified small employer health reimbursement arrangements are not affected.
Who is eligible for the subsidy? To receive the subsidy, an individual must be eligible for COBRA continuation coverage as a result of an employee's involuntary termination of employment or reduction of hours, and their COBRA coverage period must overlap with the applicable subsidy period (described below). In addition, these individuals must fall into one of the following groups:
- On April 1, 2021, they had already elected and were enrolled in COBRA coverage.
- On April 1, 2021, they could have been enrolled in COBRA but were not, either because they did not elect COBRA, or because they elected COBRA and then later discontinued it. Individuals in this group must elect (or reelect) COBRA during a special second-chance election period (described below) to become eligible for the subsidy.
- They first become eligible for COBRA during the subsidy period and they elect COBRA.
Individuals are no longer entitled to the subsidy when they become eligible for coverage under another employer's group health plan or Medicare. Individuals must notify the plan under which they are receiving a COBRA subsidy of these events and will be subject to a penalty if they fail to do so.
What are the dates of the subsidy period? It begins April 1, 2021 and ends September 30, 2021. The subsidy period does not expand an individual's COBRA coverage period. For example, if an individual's COBRA period would normally end on May 31, 2021, the individual would be eligible for a subsidy only in April and May, and the individual's coverage will not extend past May 31, 2021.
What is the amount of the subsidy? The subsidy is the entire COBRA premium for the eligible individual during the relevant portion of the subsidy period.
What is the second-chance election period? Some individuals (those in the second bullet point above) will get a second chance to elect COBRA coverage so that they can take advantage of the subsidy. These individuals must elect COBRA during the second-chance election period, which begins on April 1, 2021 and ends 60 days after the supplemental notice (described below) is provided to the eligible individual.
What are the new notice requirements?
- Individuals who become eligible for COBRA during the subsidy period must have additional information about the subsidy included in or with their standard COBRA election notice. In general terms, the notice must describe the individual's right to a subsidy, any conditions on that right, any forms necessary for establishing eligibility for the subsidy, and contact information for the plan administrator (or other person) who can provide additional information about the subsidy in relation to the plan. The notice must also describe the individual's obligation to notify the plan when the individual becomes eligible for an employer group health plan or Medicare.
- Individuals who became eligible for COBRA before the subsidy period and are eligible for a subsidy must receive a new notice from the plan administrator. (It is not clear whether individuals who became eligible for COBRA as a result of a different qualifying event, such as divorce, must also receive the notice.) The notice must generally include the same information as described in the previous bullet. Where applicable, the notice must also include a description of the second-chance election period.
- Between 45 and 15 days before an individual's subsidy expires, the plan administrator must send the individual a subsidy expiration notice. The notice must identify the date on which the subsidy will expire. The notice must also advise the individual that they may be eligible for unsubsidized COBRA coverage or other group health plan coverage.
- The Department of Labor is required to issue model notices in April.
How do the subsidies get paid out? Individuals who are eligible for subsidies (see above) do not receive a subsidy payment directly; instead their COBRA premiums are waived during the relevant portion of the subsidy period. (If individuals entitled to subsidies nevertheless pay their premiums, those premium payments must be refunded.) The plan must treat these individuals as having paid their premiums in full. The "person to whom premiums are payable" recoups the lost premium by taking a credit against employment taxes it owes. If the credit exceeds the employment taxes owed, the excess is a refundable tax credit. The "person to whom premiums are payable" means:
- For a multiemployer plan, the plan itself.
- For a plan (other a multiemployer plan) that is subject to federal COBRA or is self-funded, the employer maintaining the plan.
- For other plans, including plans subject to state COBRA, the insurance company providing coverage under the plan.
What are the next steps for employers? Companies should contact their COBRA administrators and ask what their strategy is for identifying eligible individuals, making operational decisions, and revising notices. For example, will they wait for model notices to be issued, or make their own revisions now? The subsidy process is going to require open lines of communication, as well as considerable cooperation and patience.
Again, this is a high-level summary, as the Act provides more details and many questions remain. We anticipate substantive guidance from the Department of Labor soon, in addition to the model notices.
Questions? If you have questions or concerns regarding this client alert, please contact the authors, any member of Venable's Employee Benefits Practice Group, or your regular Venable lawyer.