By Joshua M. Osborne and Alexandra A. Ifrah
On March 11, 2021, President Biden signed into law a comprehensive stimulus package titled the American Rescue Plan Act of 2021 (ARPA) that includes assistance in the form of a 100 percent COBRA premium subsidy to “assistance eligible individuals” for a period of up to six months.
Although ARPA went into effect on April 1, 2021, employer implementation of the new law has been delayed pending the release of the model notices by the Department of Labor (DOL). However, on April 7, 2021, the DOL issued the model notices to be used by employers to satisfy the notice obligations imposed by ARPA along with a set of FAQ’s that provide some clarifying guidance. Now that the model notices have been released, employers should begin taking steps toward satisfying its obligations under ARPA.
Assistance Eligible Individual
Under the new law, a COBRA premium subsidy is made available to “assistance eligible individuals” who are COBRA qualified beneficiaries who are eligible for or becomes eligible for COBRA at any point during the period beginning April 1, 2021 and ending September 30, 2021, because of a qualifying event in connection with a reduction in hours or termination of employment (other than a voluntary termination or involuntary termination for gross misconduct) and who elects COBRA coverage.
Second Election Opportunity
ARPA also provides that a COBRA premium subsidy may be available to COBRA qualified beneficiaries who previously failed to elect COBRA or lost COBRA coverage for failure to pay premiums prior to April 1, 2021. Specifically, if a COBRA qualified beneficiary experienced a qualifying event on account of a reduction in hours or involuntary termination of employment (other than gross misconduct) and the maximum COBRA coverage period has not expired by April 1, 2021, the qualified beneficiary will be considered an assistance eligible individual and will have the right to an additional COBRA election opportunity
As detailed below, a notice must be provided to the assistance eligible individual by May 31, 2021, that notifies them of their right to a second COBRA election opportunity. Upon receiving the notice, the individual will have 60 days to elect COBRA coverage and the COBRA premium subsidy. However, it should be noted that this second election opportunity will not extend the period of coverage beyond the original maximum period allowed (generally 18 months from the reduction in hours or involuntary termination).
It should also be noted that updated guidance clarifies that coverage can be effective prospectively from the date of the election or retroactive back to April 1, 2021. But assistance eligible individuals who experienced a qualifying event prior to April 1, 2021 and who elect coverage during the second election opportunity, will not be required to elect coverage back to the initial qualifying event in order to receive the COBRA premium assistance.
Period Of Subsidized Coverage
Under ARPA, subsidized COBRA coverage will only be available for the period beginning April 1, 2021 and ending September 30, 2021, but the COBRA premium subsidy may be terminated earlier if the assistance eligible individual reaches the end of the COBRA maximum coverage period. Additionally, individuals will lose eligibility for the COBRA premium subsidy upon becoming eligible for other employer sponsored group health coverage or for Medicare.
Notice Requirements
Under ARPA there are three different notice requirements that apply to employers in connection with the COBRA premium subsidy. The first notice requirement must be furnished to qualified beneficiaries who experience a qualifying event during COBRA premium subsidy period between April 1, 2021 and September 30, 2021. With respect to this notice, the DOL has issued a model notice titled “Model ARP General Notice and COBRA Continuation Coverage Election Notice” that modifies the COBRA Election Notice to include specific information on the availability for premium assistance. Whether or not the employer utilizes the DOL’s model notice, it will be required to include the DOL form “Summary of the COBRA Premium Assistance Provisions under the American Rescue Plan Act of 2021” that includes the form required to request the premium assistance.
The second notice required to be furnished by the employer goes to those individuals who had a COBRA qualifying event prior to April 1, 2021 and whose maximum COBRA continuation coverage period has not expired as of April 1, 2021. The model notice provided by the DOL that can be used to satisfy this notice requirement is titled the “Model COBRA Continuation Coverage Notice in Connection with Extended Election Periods” and it should be provided to assistance eligible individuals currently enrolled in COBRA as well as those who failed to elect COBRA or their coverage was terminated for failure to pay the premium. This notice must be provided by May 31, 2021. The DOL form “Summary of the COBRA Premium Assistance Provisions under the American Rescue Plan Act of 2021” that includes the form required to request the premium assistance must also be provided with the Model COBRA Continuation Coverage Notice in Connection with Extended Election Periods.
The final notice to be provided under ARPA goes to assistance eligible individuals electing the premium subsidy and this notice informs the individual of the pending expiration of the premium subsidy. The model notice provided by the DOL is titled “Notice of Expiration of Premium Assistance.” This notice must be furnished to assistance eligible individuals within 15-45 days before the premium subsidy expires (i.e., September 30, 2021 or the end of the maximum COBRA coverage period, if earlier).
As noted above, the DOL has made available model notices that can be used to satisfy each of the notice obligation imposed on the employer. These model notices as well as the Summary of COBRA Premium Assistance Provisions under the American Rescue Plan Act of 2021 can be accessed here.
Mechanics Of The COBRA Premium Subsidy
In order for the COBRA premium subsidy to apply, the assistance eligible individual will need to submit a form requesting the premium assistance. This form is included in the model notices as described above and is intended to verify the individual’s eligibility for assistance. Assistance eligible individuals should not be charged any premium during the period of the subsidy. Rather, the employer will need to seek reimbursement for the amount of the subsidized coverage through a refundable payroll tax credit.
Employer Next Steps
Now that the model notices have been issued by the DOL, employers need to begin taking immediate steps to work with their COBRA administrator to ensure that all assistance eligible individuals are identified and that compliant notices are furnished to each group within the timeframes described above. Because of the short time frame in which the subsidy is available, it is necessary to act quickly to satisfy the obligations under ARPA.
Joshua M. Osborne is a partner in the firm’s Employee Benefits and Executive Compensation Practice Group. His practice focuses on providing counsel to clients on all aspects of their welfare benefits, retirement plans and executive compensation arrangements.
Alexandra A. Ifrah is a partner in the Employee Benefits Practice Group of Friday, Eldredge & Clark and serves on the firm's Management Committee. Since joining the firm in 1999, Alexandra has concentrated her practice on the representation of employers from a myriad of industries in complex employee benefits, taxation and executive compensation matters.
Disclaimer: The information included here is provided for general informational purposes only and should not be a substitute for legal advice nor is it intended to be a substitute for legal counsel. For more information or if you have further questions, please contact one of our Attorneys.