United States: Big Changes And Little Guidance So Far In New COBRA Law

The American Rescue Plan Act of 2021 ("ARPA") provides for a 100% COBRA premium subsidy for "assistance eligible individuals," for the period from April 1, 2021 to September 30, 2021. During this six-month time period, group health plans must treat an assistance eligible individual as having paid the full amount of premiums for COBRA coverage.¹ Note that the COBRA premium assistance ends when the assistance eligible individual becomes eligible for coverage under another group health plan or under Medicare.  

"Assistance eligible individual" is an ARPA-defined term that generally means a person eligible for COBRA whose employment is terminated by the employer or who has a reduction in hours (whether such employee's reduction in hours is voluntary or involuntary), not an employee who has voluntarily terminated his or her employment.  We have heard from some employers who have classified employees as voluntarily terminated in their HR systems when those employees have essentially been given a choice whether to resign or be fired.  ARPA does not define what it means by "voluntary termination," but this is an area where employers should carefully comb their records to determine whether terminated employees in fact should be classified as involuntary terminations until further guidance is issued.

ARPA defines assistance eligible individual to include both the employee and his or her eligible qualified beneficiaries, and also allows an assistance eligible individual who elects COBRA to enroll in a group health plan that is different from the plan the person was enrolled in at the time of his or her qualifying event if the employer chooses to offer that choice to its assistance eligible individuals.  Note that, generally, COBRA-eligible employees may only choose coverage under the plan they were enrolled in at the time of their qualified event; employers may now choose to give them the opportunity to elect into a different plan, but employers are not required to offer this option.

ARPA provides for notices that must be furnished to an assistance eligible individual to notify him or her of these special COBRA rules. Employers will need to update existing COBRA notices, or prepare a separate document or insert to be provided along with the standard COBRA packet.  COBRA election notices provided on or after April 1 must include this new information.  Model notices for this purpose should be published by April 10, 2021, so stay tuned for more information.

ARPA does not extend or modify the period of COBRA eligibility, which is most often 18 months (but could be as much as 36 months), but it does apply the COBRA premium assistance benefit to persons whose qualifying events precede the enactment of ARPA. This generally would be employees who are still under the general 18-month COBRA period (or possibly a longer period, as applicable), and who make an election within a new 60-day period required under ARPA.  Employers who have fully insured health benefits issued in Connecticut may also be subject to Connecticut's mini-COBRA statute, which would increase the general COBRA period from 18 months to 30 months.  Employers should start making a list of their involuntarily terminated employees from November 2019 (and from as far back as November 2018 if mini-COBRA applies) who did not elect COBRA when first offered or who elected COBRA and have since dropped it prior to April 1, 2021.  Employers will need to offer these individuals a new election for this special COBRA period.  This notice must be provided by May 31, 2021, and the Department of Labor is expected to provide a model notice.

In addition to compiling and reviewing the employee data necessary to extend this opportunity to assistance eligible individuals, employers should contact their COBRA administrators as soon as possible to discuss how they are addressing employees already on COBRA, and what help they can offer with the various notice requirements. 

Footnote

1 For COBRA premiums not paid by the assistance eligible individual, employers will be eligible for a refundable tax credit that is claimed on their quarterly Form 941 payroll tax return.  An assistance eligible individual's receipt of COBRA premium assistance is not includible in his or her gross income for tax purposes.

Originally published April 2, 2021.

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