New Premium COBRA Benefit Begins April 1st
On March 11, 2021, the American Rescue Plan Act (“ARPA”) was enacted. The ARPA extended and expanded previous relief efforts, like FFCRA tax credits, unemployment relief, and PPP eligibility, and created entirely new relief programs, like the Restaurant Revitalization Grant Program. This client alert discusses another new program created under the ARPA—a program providing fully subsidized COBRA coverage where employers must offer free COBRA coverage to qualified individuals, but can claim an offsetting tax credit. Details of the subsidized COBRA coverage is discussed below.
Background
Under COBRA, nearly all businesses that have more than 20 employees and offer a group health plan are required to offer covered employees and their dependents the rights to continued group health plan coverage after a triggering event, i.e., a termination or reduction in hours, unless the adverse employment event was as a result of the employee’s gross misconduct.
This continued health plan coverage, or the “COBRA benefits,” usually last for a period of 18-months, but may be extended under special circumstances. An employee or other covered person generally must pay 102% of the plan premiums for COBRA coverage. If an employee waives or defaults on premium payments, then the COBRA coverage ceases.
Subsidized COBRA Benefits
Under the ARPA, qualified individuals are entitled to 100% subsidized COBRA coverage, provided at the former employer’s expense from April 1, 2021 through September 30, 2021 (the “Covered Period”).
Employers are required to offer coverage to any employee who would be eligible for COBRA coverage under a group health plan on April 1, 2021 or at any time thereafter during the Covered Period. As discussed above, generally employees are eligible for COBRA coverage if employer health plan coverage is lost due to a termination or reduction in hours. As discussed above, if the termination or reduction in hours is as a result of the employee’s gross misconduct, then COBRA continuation coverage can be denied. The ARPA adds an exception to the subsidy—where the termination of employment is the “voluntary termination of such individual’s employment by such individual.” The meaning of “voluntary” is yet to be clarified. Individuals may be eligible for the new subsidized COBRA even if they previously waived COBRA coverage or lost coverage for failure to pay premiums.
The new COBRA provision does not mention COVID-19. It applies to all qualifying individuals regardless of when or why they were terminated, laid off, or had their hours reduced. As discussed above, generally COBRA benefits last for 18-months, and the mandate to provide benefits applies to any qualified individual on April 1, 2021. However, the mandate cannot extend a person’s benefits beyond the coverage period provided under COBRA, again, generally 18-months. Thus, an qualified individual that began COBRA on November 1, 2019 (17 months ago) would be eligible for one month of fully subsidized coverage (April of 2021). And qualified individuals that began COBRA in April of 2020 or after will be eligible for the full six months of subsidized coverage from April 1, 2021 through September 30, 2021.
Required Notices
Under the ARPA, employers will be required to provide, primarily, two notices: (1) Notice of the continuation coverage and special enrollment period, and (2) Notice of termination of the subsidized coverage. The Department of Labor and Department of Health and Human Services will issue model notices for each.
Employers must provide a Notice of subsidized coverage and special enrollment to all qualified individuals by May 30, 2021 of the expanded coverage available. The individual then has 60-days to elect coverage, which is retroactive to April 1, 2021.
For those qualified individuals that do elect extended COBRA coverage, an employer must also provide Notice of termination of the subsidized coverage. This notice must be provided at least 15 days before but not more than 45 days before September 30, 2021.
Tax Credits and Outstanding Issues
Employers are entitled to take a tax credit against quarterly Medicare payroll taxes equal to the full amount of premiums not paid by the qualified individual for the extended COBRA coverage. If the tax credit for any quarter exceeds taxes paid for that quarter, the excess tax credit is treated as an overpayment and the employer is entitled to a refund. The refund provision is particularly important. No credit is allowed for wages taken into account for purposes of the Employee Retention Tax Credit or FFCRA Tax Credits.
The Department of Labor and Department of Health and Human Services will be publishing form notices by the end of April. The Departments, whether it be via regulations or informal guidance, will likely provide additional clarification on the new “voluntary termination” concept and other issues in administering the new expanded COBRA program.
In the meantime, businesses should start sorting through qualifying former employees or current employees with reduced hours dating back to November of 2019. Identifying, and locating these employees for purposes of providing notice, is the preliminary administrative hurdle to comply with the ARPA COBRA provisions.
Please contact a MacDonald Illig attorney if you have any questions about the new expanded COBRA coverage under the ARPA.