ARP: COBRA Premium Assistance
The United States Department of Labor has issued much anticipated guidance and model forms under the COBRA subsidy rules introduced by the American Rescue Plan (ARP). The FAQ guidance and forms clarify some issues that employers have raised about the COBRA subsidy provisions of the ARP, but leave a number of the most significant questions unanswered. Clarifications and confirmations in the new guidance include:
- The subsidy applies to voluntary as well as involuntary reductions of hours (but only involuntary terminations of employment).
- Apart from health FSAs, the subsidy applies to all group health plans.
- Although individuals who are eligible for Medicare and most types of group health plans will not qualify for the subsidy, the subsidy may apply to individuals who are eligible for (and even covered under) Medicaid or an individual health insurance policy. However, individuals who receive the COBRA subsidy will not qualify for certain other government subsidies for health coverage, such as the premium tax credit that helps some individuals afford coverage offered through an exchange established under the Affordable Care Act.
- Individuals who would qualify for the subsidy if they had elected COBRA initially or had maintained (and not discontinued) COBRA coverage after initially electing it will have a second chance to elect COBRA effective April 1. If those individuals still have the right to elect COBRA as of a date before April 1 (for example, because of the extended deadline for COBRA elections), they may do so, but the COBRA subsidies will apply only from April 1 through September 30.
- Employers must give employees notice of their right to the new election and meet certain other notice obligations. Eligible individuals must be allowed at least 60 days after receiving notice of their right to the new election to make that election. None of the deadlines for issuing these notices or making elections are extended by guidance that has been previously issued that generally extends deadlines under COBRA on account of the COVID-19 emergency.
- The right to a new election applies only to those eligible for COBRA under federal law. It does not apply with respect to state mini-COBRA laws, although those who have continued coverage under state mini-COBRA laws will qualify for the subsidy.
- Regular COBRA penalties may apply to an employer that fails to provide appropriate notice of the subsidy or the right to a new election.
The FAQs offer little or no guidance about other issues of great concern. For example, the FAQs offer no specific guidance on the coordination of the COBRA subsidy with severance plans, not even stating whether employers may rely on guidance issued in 2009 for prior COBRA subsidies. In addressing the right to a new COBRA election, the guidance refers only to individuals who would qualify for a subsidy. It says nothing about whether the election needs to be offered to individuals who have qualifying events other than a reduction of hours or involuntary termination of employment. There is no suggestion in the guidance that individuals who qualified for COBRA for reasons other than a reduction of hours or involuntary termination of employment need to be provided notice, but an explicit statement on this subject would have been helpful. Similarly, the guidance is silent as to what constitutes an involuntary termination of employment. The guidance says that notice needs to be provided to those who would have qualified for a subsidy on April 1 if they had elected or maintained COBRA coverage. That requirement would technically include certain individuals whose maximum COBRA period would have been extended from the regular 18-month period to 29 months because of a disability or to 36 months because of a second qualifying event. But an employer often will not know whether an individual who has not enrolled in COBRA qualifies for that sort of an extension. Again, the FAQs are silent.
The DOL has met its obligation under ARP to provide model notices within 30 days of enactment. These models include:
- A form to notify an individual who has a qualifying event between April 1 and September 30 of the individual’s COBRA rights, including the subsidy.
- A version of that form that may be used for individuals whose qualifying event preceded April 1, including notice of the new election period.
- An alternative (abbreviated) form of notice.
- A notice of the expiration of the COBRA subsidy to be provided 45 to 15 days before September 30 (or, if earlier, the date the individual’s maximum COBRA period ends).
- A summary of the COBRA subsidy provisions with forms for requesting the subsidy and notifying the plan of eligibility for other coverage that would terminate eligibility for the subsidy.
The guidance suggests providing the summary and its accompanying forms, together with the other notices. Employers that require an election of the COBRA subsidy (as opposed to automatically extending the subsidy to those who qualify) will need to be prepared to administer an election process. As applicable, they may need to confer with their COBRA administrator as to how this will be handled.
The model notices provide a safe harbor for employers and will be deemed to provide the content that ARP requires. However, employers are not required to use the models and may consider how to integrate appropriate provisions into their own notices based on their own processes.
The fact that the guidance was issued only by the DOL is significant. The DOL has jurisdiction over COBRA notices. With a statutory deadline under ARP to produce models, the publication of the new forms appears to have been the focus of this guidance. More guidance on the COBRA provisions in ARP is expected, which may address at least some of the open issues.
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