Under the highly publicized and recently enacted American Rescue Plan Act of 2021 (ARPA), beginning April 1, employees and their family members who group health plan coverage due to an involuntary termination of employment or workweek reduction will have the right to obtain fully subsidized COBRA coverage for up to six months. For employees and family members who opt for coverage, employers must advance the premiums on behalf of the employees to their group provider. The employer then may recoup those premium payments through a refundable tax credit, similar to that employed last year for Emergency Paid Sick Leave and Emergency FMLA payouts under the Families First Coronavirus Response Act (FFCRA).
The Good News for Former Employees
Under the Consolidated Omnibus Budget Reconciliation Act (COBRA), employees who resign or are terminated from their employment (or have their hours reduced below the minimum required by the plan) have the right to remain on their former employer’s group health plan (“COBRA Continuation Coverage “) for up to 18 months (29 months for disabled employees) provided the employees timely pay up to 102% of the full amount of the insurance premiums. Under ARPA, such employees (referred to as “Assistance Eligible Individuals”) are entitled to COBRA coverage at no cost to them from April 1, 2021 to September 30, 2021. The subsidized benefits end earlier if the Assistance Eligible Individual’s COBRA eligibility otherwise ends. Assistance Eligible Individuals will be responsible for notifying employers about a change in their eligibility for coverage and are subject to a penalties for failing to do so.
The Good News for Employers
Quite often, terminated employees are offered severance benefits that may include payment or reimbursement of a portion of the employee’s COBRA premium for a defined period of time, usually coinciding with the number of weeks or months of severance offered. Under ARPA, as of April 1, employers can provide terminated employees financial support for COBRA Continuation Coverage for up to 6 months at no cost to either the employer or the employee, regardless of whether signs a release. The employer must front the payments but may then recoup those payments through the tax credit process. Accordingly, many employers will suspend these employer-funded payment/reimbursement offerings through September 30, 2021.
The Bad News for Employers
Although participation in the program by Assistance Eligible Individuals is optional, employer participation in the program is not. ARPA also requires plan administrators to provide all Assistance Eligible Individuals with notices of their rights to the subsidies. COBRA continuation rights notices provided on or after April 1 will need to include this additional information, but may be delayed if not updated by April 1. Model notices should be available from the IRS and/or DOL by April 10.
This will require three changes to the current notice requirements:
- COBRA continuation notices must include: (1) the forms necessary for establishing eligibility for the subsidy; (2) contact information for the plan administrator or others with information on the premium assistance; (3) notice of a special 60-day second enrollment election period; (4) the Assistance Eligible Individual’s obligation to notify the plan of other coverage that would disqualify the Assistance Eligible Individual form further subsidies and penalty for failure to provide the notification; (5) a description Assistance Eligible Individual’s right to a subsidized premium and any conditions on entitlement; and (6) a description of the right to enroll in different coverage if the plan allows this option.
- Assistance Eligible Individuals who previously declined or terminated COBRA continuation coverage must be provided notice of the 60-day election period during which they may elect subsidized coverage and the availability of the premium assistance. This notice must be provided by May 31, 2021.
- Plan administrators must also provide advance notice of the upcoming expiration of an Assistance Eligible Individual’s premium assistance period. This must be provided ding the window period beginning 45 days and ending 15 days before the expiration of premium assistance.
Employers will be reimbursed for the payments subject to the ARPA subsidy through the same payroll tax credit process utilized under the FFCRA at the time the employer pays its quarterly taxes. If the credit exceeds the amount of payroll taxes due, the credit will be refunded after the 941 Forms are filed.
Specific regulatory guidance on administration of ARPA is expected from the Department of Labor and/or the Internal Revenue Service within the next month.