The newly signed American Rescue Plan Act (“ARPA”) provides for 100% premium assistance to certain qualified beneficiaries for continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) for periods of coverage beginning on or after April 1, 2021 and ending September 30, 2021. The Department of Labor has also issued new guidance and model notices to assist employers in their compliance. The expanded COBRA coverage and premium assistance applies to any individual who, due to an involuntary termination of employment or any reduction in hours (so long as the individual remains employed when their hours are reduced), becomes eligible for or already has COBRA continuation coverage for the period running from April 1, 2021 through September 30, 2021. Terminations due to an individual’s “gross misconduct” do not qualify for premium assistance. Expanded COBRA coverage is retroactive to October 2019 meaning individuals who were previously eligible to elect COBRA continuation coverage, but did not do so as of April 1, 2021, or who had elected such coverage but discontinued it prior to April 1, 2021, may now claim the expanded benefit. Individuals whose maximum COBRA coverage period expired before April 1, 2021 are not eligible for premium assistance. To offset the premium costs borne by the employer, employers will be able to claim employment tax credits to cover both premiums and administrative costs.
Why you need to know about this?
These changes place affirmative duties and obligations on employers to ensure their compliance. Employers and/or plan administrators are required to notify any individual who experienced an involuntary termination or any reduction in hours that they are eligible for COBRA premium assistance under the ARPA. Notices must be sent by May 31, 2021. Covered individuals have 60 days from their receipt of the notice to elect COBRA coverage. Importantly, any premium assistance under the ARPA applies only to the period of April 1, 2021 to September 30, 2021.
In addition, guidance from the Department of Labor (“DOL”), provides that each qualified beneficiary has an independent COBRA election right. That means that if a family member did not elect COBRA when first eligible but would now qualify for premium assistance, that family member has a new right to elect coverage even if other family members already have COBRA continuation coverage.
Plan administrators must also provide new information to individuals who become COBRA-eligible during the period of April 1, 2021, through September 30, 2021. The DOL’s newly issued model notices cover this new information requirement.
Plan administrators must also send a notice to covered individuals prior to the expiration of premium assistance which states when the assistance will expire and that the individual remains COBRA eligible without premium assistance. This notice must be sent during a period that begins 45 days before premium assistance will expire and ends 15 days before premium assistance expires.
Finally, employers will not be able to claim the COBRA premium assistance tax credit for any amounts paid for which they are also claiming tax credits as qualified wages under the CARES Act or Families First Coronavirus Response Act (“FFCRA”). Plan sponsors must refund any COBRA premiums paid by individuals who are eligible for premium assistance for any periods of coverage for which they paid premiums beginning on or after Aril 1, 2021 and ending September 30, 2021.
What should you do now?
Employers should consult with experienced employment counsel and begin their compliance by performing an audit of their workforce since October 2019 to identify any individual who is eligible for COBRA premium assistance. Compliance with the new ARPA is both complicated and critical as employers must comply with these new regulations to avoid any penalties from the DOL and to avoid costly litigation. The updated guidance and model notices have not addressed all issues raised by the new premium assistance and there are still several grey areas employers will need to navigate. To get the answers to your questions, comply with the ARPA and avoid violating these new regulations, contact Megan Knowlton Balne or Michael G. Greenfield of Hyland Levin Shapiro’s employment practice group.