Compliance Alert: ARPA & COBRA Subsidy April 2021
President Biden signed the new American Rescue Plan Act of 2021 (ARPA) into law on March 11, 2021. Among the Act’s many economic stimulus provisions includes a 100% federal subsidy of eligible COBRA premiums for assistance-eligible individuals (or AEIs), their spouse, and dependents. the Act will provide full subsidies to workers who lose their health coverage due to a reduction in hours or involuntary termination during the eligible period and meet the definition of an AEI.
How will employers receive the ARPA COBRA subsidy?
Under the Act, employers will pay the relevant COBRA premiums during the subsidy period and obtain their Act subsidy via a payroll tax credit against employers’ quarterly taxes. Should the credit exceed the amount of payroll taxes due, the credit will be refundable when employers submit their Form 941 quarterly payroll tax return.
Who qualifies as an Assistance-Eligible Individual (or AEI)?
The Act defines an ‘Assistance Eligible Individual’ as an individual, including employees and their dependents, who have (i) lost group health plan coverage as a result of an involuntary termination of employment or reduction in hours, (ii) are still within the COBRA eligibility period as of April 1, 2021, or (iii) become eligible for COBRA continuation coverage on or after April 1, 2021.
The AEI definition does not include individuals who voluntarily terminated employment or otherwise lost coverage through death, divorce, or aging out of dependent status.
Does the subsidy include the 2% administrative fee permitted under current COBRA rules?
The COBRA subsidy provided under the Act will cover the full premium amount plus the 2% administrative fee (if any). The federal government will reimburse the cost of the subsidy, including the 2% COBRA administrative fee through payroll tax credits.
Does the ARPA subsidy allow a break in coverage?
Yes. The second enrollment period allows an AEI to elect COBRA coverage from 04-01-2021 to the end of their original last day of COBRA without having to pay current on all premiums due, as long as the AEI is still within the original COBRA continuation period.
What is the process for refunds if a COBRA participant already paid the premiums for one of the months where the subsidy is available and the participant is an Assistance Eligible Individual?
In the case of an assistance eligible individual who pays a premium for a subsidized month, the ARPA statute requires the person to whom such payment is payable to reimburse the individual for the amount of the premium he or she paid.
Does the subsidy apply to state-level COBRA as well as Federal COBRA?
The Act includes state continuation coverage language in the Act, requiring compliance from small employers with fewer than 20 lives.
Can Assistance Eligible Individuals switch coverage?
The Act also permits employers to offer up to 90 days of COBRA notification for beneficiaries to enroll in different employer coverage from what they had at the time of termination, but that coverage cannot be more expensive than the current coverage premium.
Does the Act require new notifications?
Anyone who qualifies as an AEI and didn’t elect coverage during their initial 60-day COBRA election period must receive a new opportunity to elect COBRA, as measured from their original qualifying event date. After termination, the period before making a new election will be the “lookback period” in determining member eligibility.
Employees must also receive notification of their COBRA subsidy period expiration within 45 days of when the subsidy ends. The notice should indicate if the affected AEI remains eligible for COBRA for any remaining period without the subsidy. Notification is not required if the AEI is still eligible for other coverage or reaches the end of their COBRA period.
How long will the ARPA COBRA subsidy last?
For eligible COBRA enrollees, the Act offers the federal COBRA subsidy on the first day of the month following the legislation’s enactment, April 1, 2021, and ends on September 30, 2021.
The subsidized coverage could end sooner if the individual’s COBRA coverage maximum period (generally, 18 months) ends before September 30, 2021. It will also end earlier if the individual becomes eligible for coverage under another group health plan or Medicare. Individuals will be required to notify their group health plan if they become eligible for such coverage or else subject to a penalty of $250 if they fail to do so.
NEXT STEPS
We are waiting for the Department of Labor (DOL) to release updated guidance, model COBRA notices, and compliance assistance, including how the subsidy interacts with the prior published COBRA deadline extensions.
Guidance from the DOL is expected by April 10, 2021. Once the DOL releases further guidance, we will send an update to you with the additional information. In the meantime, please contact your Rogers Benefit Group representative for your small and large group needs.