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Attorney Blog, Human Resources

The American Rescue Plan Act’s COBRA Premium Subsidy

Attorney Harrison Oldham

I include a summary here because you might read the rest of this article and think, “No way, really?!” And yes, yes really.

Summary:

  • The American Rescue Plan Act provides for a 100 percent COBRA premium subsidy for certain former employees from April 1, 2021 to Sept. 30, 2021 and provides a second chance for some individuals to elect COBRA health insurance coverage.
  • Employers will be responsible for complying with notice requirements for eligible former employees during the premium subsidy period.
  • Employers will be eligible for a refundable tax credit to offset amounts paid under the COBRA subsidy provisions of the American Rescue Plan Act.

The recently signed American Rescue Plan Act (the “Act”), will have a major impact during the next six months on employers’ obligations in administering COBRA health insurance benefits. Specifically, under the Act, assistance eligible individuals (“Eligible Individuals”) are entitled to have their COBRA premium payments fully subsidized by their former employer for the period between April 1, 2021 and September 30, 2021 (the “subsidy period”). The subsidy applies to group medical, dental, and vision benefit plans but not healthcare flexible spending arrangements. Similar to the Families First Coronavirus Response Act, employers will be reimbursed for all COBRA premiums they pay under Act through a tax credit on their quarterly payroll tax filings.

Who is an Eligible Individual?

Eligible Individuals are any qualifying employee who,

  • loses, or has lost, health insurance coverage due to
  • an involuntary termination (other than for gross misconduct) or a reduction in hours worked and
  • who elects continuation coverage to be effective during the April 1, 2021, and September 30, 2021, timeframe.

Said another way, the premium subsidy is available for any Eligible Individual (as defined above) who is eligible for COBRA at any point in time between  April 1, 2021, and September 30, 2021. Traditionally, COBRA coverage is available for 18 months. That means that if an Eligible Individual was terminated twelve months ago, in April 2020 (for a reason other than for gross misconduct), they will be eligible for the COBRA premium assistance.

Neither the Act nor COBRA defines “gross misconduct.” Until further guidance is issued, employers, for purposes of the Act subsidy, should not classify an employee’s involuntary termination as “gross misconduct” unless the employee intentionally engaged in deliberate misconduct or acted recklessly with knowledge that doing so would cause others harm.

As with traditional COBRA eligibility, an Eligible Individual will lose eligibility for COBRA subsidized coverage if they become eligible for other group health insurance coverage or Medicare. Eligible Individuals are required to notify the plan if they lose eligibility for COBRA subsidized coverage.

Not all dependents of the Eligible Individuals will be eligible for the subsidy, however. Specifically, the subsidy applies only if the dependent is a “qualified beneficiary” as defined by COBRA. Domestic partners are not included in this definition. Notably, to receive the subsidy, even COBRA-qualified beneficiaries must be covered by the plan on the day before the qualifying event (meaning the termination or reduction in hours). This means that dependents who elected COBRA coverage through HIPAA’s special enrollment rules after their spouse or parent was involuntarily terminated are not eligible for the Act subsidy.

Further, it does not matter if these former employees original elected COBRA coverage or if they originally elected coverage and later dropped it.  Instead, the Act gives some individuals a “second chance” to re-elect COBRA coverage in certain situations. Specifically, this group of individuals would include Eligible Individuals whose statutory maximum COBRA coverage period has not yet concluded, but either did not elect COBRA coverage or elected but then discontinued coverage. These “second chance” Eligible Individuals have an additional opportunity to elect COBRA coverage. However, an Eligible Individuals who discontinued COBRA coverage and elects COBRA again will be allowed COBRA continuation coverage only for the remaining time of the original COBRA continuation coverage period.

How Long Does the Subsidy Period Last?

Currently, the subsidy period is set to last between April 1, 2021 and September 30, 2021. Those numbers are of course subject to change and extension.  However, not all Eligible Individuals will be able to receive a full six-month COBRA subsidy. The maximum period an Eligible Individual is eligible for the Act subsidy is determined as of the date of the COBRA-qualifying event. Additionally, the Act subsidy will end sooner if the Eligible Individual becomes eligible for coverage under another group health plan or Medicare.

Although the election period has been extended and broadened to include more individuals who may qualify for subsidized COBRA coverage, the Act does not extend the maximum COBRA coverage period (generally 18 months). Thus, it is possible for Eligible Individuals to qualify for subsidized COBRA coverage for a portion of, but not all of, the six-month subsidy period.

How do Eligible Individuals Enroll?

The Act lengthens the COBRA election period and allows individuals whose COBRA election period expired prior to April 1, 2021, to elect subsidized COBRA coverage beginning April 1, 2021, so long as the individual otherwise qualifies as an Eligible Individual and remains eligible for COBRA coverage during (some or all of) the six-month subsidy period. This special enrollment opportunity also allows Eligible Individuals who previously declined COBRA, or elected but then terminated their COBRA coverage (such as due to premium nonpayment), the ability to elect subsidized COBRA coverage beginning April 1, 2021.

What does this Mean for Employers?

First, it is important to understand that there are many more provisions to the Act. This article is a very high-level overview. Second, the Act has had major impacts on employers’ obligations and responsibilities in regard to compliance requirements for COBRA coverage. Official guidance from the DOL and IRS is expected within weeks, and notice forms even sooner. Until then, it is best to start identifying which of your current or former employees could be considered Eligible Individuals.

 


About Harrison Oldham

Harrison grew up in Mansfield, Texas. He attended Texas A&M University for his bachelor’s degree, where he met his wonderful wife, Kelsey. After graduating magna cum laude from Texas A&M, he attended SMU Dedman School of Law, graduating with honors in 2012. Today, Harrison and his wife live in Dallas, Texas with their son, Teddy.

Since graduating from SMU Law, Harrison has worked exclusively in the field of business law. He has spent time in private practice and in-house, working with clients of every size; from single person startups to Fortune 250 companies. Today his practice focuses on serving the diverse needs of businesses and individuals throughout Texas. You can learn more about Harrison by visiting his website, at: http://lonestarbusinesslaw.com/.

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