AMERICAN RESCUE PLAN ACT OF 2021
COBRA PREMIUM SUBSIDY OF 100%
On March 11, 2021, the American Rescue Plan Act of 2021 (ARPA) was signed by President Biden. ARPA is a $1.9 trillion economic stimulus package proposed by Biden to speed up the United States' recovery from the economic and health effects of the COVID-19 pandemic.
ARPA includes a provision for a COBRA continuation coverage premium subsidy of 100 percent for individuals and families who experienced an involuntary termination of employment or reduction in hours.
This subsidy will be available for Assistance Eligible Individuals (AEIs), as determined by the Act, from April 1, 2021 through September 30, 2021. COBRA participants must meet the below criteria in order to be an AEI:
- Coverage was lost due to involuntary termination of employment or reduction in hours.
- The COBRA participant is still within the COBRA eligibility period as of April 1, 2021.
- Eligible COBRA participants who do not have an election in place will have the opportunity to make an election during an Extended Election Period and will be able to take advantage of the subsidy effective April 1, 2021. This will be referred to as the “lookback period” in determining member eligibility.
- Eligible COBRA participants who have an election in place as of April 1, 2021 will be able to take advantage of the subsidy effective April 1, 2021.
- Eligible COBRA participants who become eligible for COBRA continuation coverage on or after April 1, 2021 will be eligible for the subsidy while it is in effect.
What else you need to know regarding this change:
- The Act creates a new extended election period for individuals who would qualify for the subsidy if they had elected COBRA before April 1, 2021. The Act also permits individuals who would otherwise be eligible for the subsidy but who discontinued coverage before April 1, 2020 to re-elect COBRA.
- The Act limits continuing eligibility for the premium subsidy. If an individual becomes eligible for health coverage under any other group health plan, flexible spending arrangement, qualified small employer health reimbursement arrangement or Medicare, they are no longer eligible for the premium subsidy and must notify the plan sponsor. There are fines for failing to notify an employer of coverage. The Act is clear that the premium subsidy does not extend the duration of COBRA coverage an individual is eligible to receive, so if the individual’s maximum coverage period ends between April and September 2021, they are no longer eligible.
- HRCTS will be complying with the new laws below by mailing all required notices per the new law
- The Act also requires employers and plan administrators to provide beneficiaries eligible for the premium subsidy with notice of the premium subsidy and the extended election period described above.
- If an employer has sent out COBRA election notices and the individual was involuntarily terminated or had a reduction in hours, the administrator has 60 days to notify the individual of the premium subsidy and the extended election period. We will review all terminations and reduction in hours for the last 18 months where COBRA notices were issued to identify who will receive the required premium subsidy notice.
- The Act also requires employers to provide notice to beneficiaries between 45 and 15 days before the subsidy is expected to end (September 30, 2021). (The Act directs that the DOL to begin creating model notices.)
- ARPA requires the Department of Labor (DOL) to provide model notices within 30 days from the date of enactment — on or before April 10. We will then have the model notices incorporated with the DOL’s language into a set of new standard subsidy notices, referred to as AEI Notices.
- The Act requires that individuals in the lookback period, as well as those currently enrolled, receive a notification regarding the subsidy within 60 days of April 1, 2021. Newly eligible COBRA participants should be notified within the current standard COBRA time frames.
- Prepare for when notice of the end of the premium subsidy will be required (45 to 15 days before September 30, 2021).
- The Act allows a payroll tax credit to employers (in the case of self-insured plans) and insurers (in the case of insured plans) to offset the unpaid premium payments. It remains unclear, however, how the mechanics of the tax credit will work. It is anticipated that this question will be addressed by regulatory guidance.
The Act and EBSA Disaster Relief Notice 2021-01 Extending Timeframes
- The Act does not replace the COBRA timeframe extensions based on the 2020 guidance from the IRS, DOL and HHS (“Joint Notice”). Instead, plan administrators will need to reconcile the Act with the EBSA Disaster Relief Notice 2021-01 (“Notice 2021-01”), the DOL issued guidance indicating that the COVID-19 extensions would continue and that all timeframe extensions must be calculated on a person-by-person basis.
- The original Joint Notice required that health and retirement plans effectively pause certain deadlines until 60 days after the announced end to the national emergency (the Outbreak Period). The deadlines impacted by the Joint Notice included:
- Deadline to elect COBRA;
- Deadline to pay COBRA premiums;
- Deadline to elect HIPAA special enrollment;
- Deadlines to file claims, appeals, and requests for external review; and
- Deadline for plan to provide COBRA election notice.
- ERISA and the Internal Revenue Code limit deadline extensions to one year. Instead, Notice 2021-01 directs that the “pause” period created in the Joint Notice ends on the earlier of: One year from the date the deadline would have begun running for that individual; or 60 days from the end of the National Emergency (which is still ongoing). This means plans need to calculate the extensions based on each individual’s date of eligibility. Someone who was first eligible for COBRA in February 2020 has a different deadline from someone who was first eligible in May 2020. The Act’s special election period adds to the confusion.
- HRCTS will be reaching out to COBRA beneficiaries that have been in the pause period updating them on the changes and when their pause period will end and when premiums will be due.
- Example Incorporating Notice 2021-01 and the Act
- A beneficiary became eligible for COBRA on March 1, 2020. The one year “pause” ended on February 28, 2021, which, under Notice 2021-01, leaves the beneficiary 60 days to elect COBRA. If the beneficiary is not eligible for the COBRA subsidy because the qualifying event was not a termination or a reduction in hours, the beneficiary can still elect COBRA, but they will then need to pay the premiums for the past 12 months of retroactive coverage and can then continue to receive coverage for the next six months (without the subsidy!) to complete 18 months of COBRA.
- If the beneficiary is eligible for the COBRA subsidy, they could elect COBRA, pay the past premiums and they would then be eligible for the premium subsidy for April through September 2021. The beneficiary could also elect COBRA based on the Act’s special election period and receive the premium subsidy from April through July 2021 without paying retroactive benefits (although no claims could be made for months where premiums were not paid).
Please note that while we wanted you to be aware of the provisions in the law and have a chance to review them, the law is quite voluminous and additional IRS guidance may be forthcoming. In addition, HRCTS cannot provide legal or tax advice regarding this law or its requirements. For those questions, you should consult your own counsel. HRCTS will continue to keep you updated on any new changes to the law affecting the benefit plans we are administering for you.