DOL Issues Guidance on Mandatory COBRA Subsidies
The U.S. Department of Labor recently issued guidance to assist employers in complying with the federal COBRA premium subsidy set forth in the American Rescue Plan Act of 2021 (ARPA).
Under ARPA, employers must subsidize the full cost of COBRA continuation coverage for qualified beneficiaries who become eligible for and elect COBRA benefits as a result of their loss of health plan coverage due to an involuntary termination of employment (other than for gross misconduct) or an involuntary reduction of hours. Importantly, the job loss or reduction in hours need not be directly caused by the COVID-19 pandemic.
Employers may recoup these costs through a payroll tax credit against the employers' quarterly taxes. Both fully insured and self-insured group health plans subject to federal COBRA are eligible for the credit against their Medicare FICA payroll taxes.
The DOL guidance provides that the COBRA premium assistance is available from April 1 through September 30, 2021. However, a qualified beneficiary who lost their health plan coverage due to an involuntary termination of employment or reduction of hours prior to April 1, 2021 and who did not previously elect COBRA continuation coverage (or did elect such coverage but is no longer enrolled) may also have an additional election opportunity. Individuals eligible for this additional COBRA election period must receive a notice of extended COBRA election period informing them of this opportunity by May 31, 2021. Individuals have 60 days after the notice is provided to elect COBRA. However, this additional election period does not extend the period of COBRA continuation coverage beyond the original maximum period (generally 18 months from the employee's reduction in hours or involuntary termination).
COBRA premium assistance will terminate early if COBRA enrollees: (1) become eligible for another group health plan, such as a plan sponsored by a new employer or a spouse's employer, or (2) reach the end of their maximum COBRA continuation coverage period.
Plans and issuers are required to notify qualified beneficiaries regarding the premium assistance and other information about their rights under the ARPA. The DOL has published model notices, which can be found here.