Beware of the COBRA lurking in the weeds of the latest COVID-relief bill

The latest COVID-relief bill, the American Rescue Plan Act (ARPA), will allow most current and former employees and their dependents to receive fully subsidized COBRA continuation coverage beginning April 1 and continuing through September 30, 2021—even if they never elected COBRA or dropped coverage. Here is what employers with group health plans subject to federal COBRA need to know about the new law:

ARPA provides three main areas of relief for affected individuals: (1) free COBRA coverage for "assistance eligible individuals" (AEIs) for periods of coverage from April 1, 2021 through September 30, 2021, with the premiums reimbursed by federal refundable tax credits; (2) a special election period for individuals who would have been AEIs as of April 1 if they had elected COBRA coverage when offered previously or if their COBRA coverage had not been discontinued; and (3) if an employer elects, the chance for AEIs to switch their COBRA coverage to a plan option with the same or a lower premium.

Under ARPA, COBRA premiums for periods from April 1, 2021 through September 30, 2021, will be fully subsidized by the federal government for AEIs. AEIs are those individuals eligible for COBRA coverage because of a reduction in hours or an involuntary termination of employment qualifying event, and who elect COBRA coverage. Employers must also extend the offer of free COBRA coverage to former employees who did not elect COBRA coverage or dropped COBRA coverage prior to April 1 but would otherwise be within their 18-month COBRA coverage period between April 1 and September 30. However, employees who "voluntarily" terminate employment and those whose employment is terminated for "gross misconduct" are not covered by these coverage provisions of ARPA.

The premium subsidies will end for an AEI on the earliest of September 30, 2021, upon becoming eligible under another group health plan or Medicare, or at the end of the 18-month maximum coverage period. These individuals must notify the plan administrator of their new group health plan or Medicare eligibility. Otherwise, the AEI will be subject to a penalty of US$250 or possibly 110 percent of the amount of the subsidized COBRA premium provided while they were ineligible.

In an effort to help offset the costs of providing free COBRA coverage, ARPA will provide tax credits for the subsidized premiums that may be taken against the employer's quarterly taxes. If an employer maintains a group health plan under which some or all of the coverage is self-insured, the employer is entitled to the credit. For insured coverage, the credit will go to the insurer. If an employee receives group health coverage from a multiemployer plan under ERISA, the multiemployer plan will receive the credit.

The law also includes specific requirements for employers to update COBRA notices (or to provide a separate notice) describing the premium subsidy to all AEIs by May 30. Failure to provide such notice will be treated as a failure of the COBRA notice requirements. The US Department of Labor is to provide a model notice by April 10, 2021. Employers must also provide notification of any early termination of the premium subsidy prior to September 30. The DOL is required to provide a model notice for this circumstance by April 25, 2021.

In order to comply with the law, employers will face a number of challenges and additional administrative responsibilities. While parts of the law remain unclear as we wait for the agencies to issue model notices and additional guidance, employers should take swift action and work closely with their COBRA administrators to determine responsibilities for complying with ARPA's requirements.

If you have any questions or would like more information on the issues discussed in this post, please contact Tom Reddin or Josh Owings.