The American Rescue Plan Act (“ARPA”), signed into law on March 11, 2021, implements significant but temporary changes to COBRA and includes new notices, government subsidies, and a second election window.
Under COBRA, individuals who lose group health coverage provided by an employer with 20 or more employees can elect to, at their own expense, continue paying for coverage for themselves and qualified beneficiaries for a period of 18 months, allowing these individuals to avoid a gap in their coverage.
In accordance with the ARPA, individuals who are eligible for COBRA coverage between April 1, 2021 and September 30, 2021 due to involuntary termination (other than gross misconduct) or reduction of hours (“Assistance Eligible Individuals”) shall receive a 100% subsidy for the cost of COBRA coverage (administration fee of 2% included).
All employers, including public, private, and governmental entities, must offer the subsidy regardless of whether health coverage is fully insured or self-insured. The subsidy applies to all group health coverage subject to COBRA (including dental, medical, and vision coverage), except for health flexible spending accounts.
Employers are entitled to a payroll tax credit for premiums paid by (and refunded to) individuals eligible for the subsidy. The credit is applied to the 1.45% Medicare payroll tax. While the ARPA provides for the advancement of tax credit, the IRS has not issued guidance regarding the advance.
All notices under COBRA must be submitted by May 31, 2021.
Individuals who were previously offered coverage but declined it will have 60 days upon receipt of the new notice to elect coverage, provided they are still eligible for coverage.
Newly elected coverage will be effective starting April 1, 2021 and shall continue through the end of the COBRA continuation coverage period that would have applied had an individual elected the coverage at the time of termination, even if that period extends beyond September 30, 2021. However, the premium assistance shall end on September 30, 2021.
Under the new rules, the COBRA notice must include the following:
Procedure for establishing COBRA eligibility and list of required paperwork;
Contact information for individuals who can provide additional information on the subsidy;
Description of the new 60-day election period;
Information on the requirement to notify the plan of any disqualifying event and penalty for failure to provide notice; and
Explanation of rights of qualified beneficiaries and any conditions on eligibility to the subsidy.
Additionally, employers are required to provide notice on the termination of coverage. This notice should be provided at least fifteen (15) days but no more than forty-five (45) days before the termination of coverage. The U.S. Department of Labor will issue new model notices for employers to use.
Employers should proactively identify individuals who would be eligible for updated COBRA benefits under the ARPA. Furthermore, employers and administrators will need to update COBRA notices and be aware of the new deadlines to send the notices to eligible individuals.
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This Legal Briefing is intended for general informational and educational purposes only and should not be considered legal advice or counsel. The substance of this Legal Briefing is not intended to cover all legal issues or developments regarding the matter. Please consult with an attorney to ascertain how these new developments may relate to you or your business. © 2021 Law Offices of Pullano & Farrow PLLC