Due to the COVID-19 economic crisis, many employees who lost their jobs or had their hours reduced have also lost their health insurance coverage at a time when access to health services matters the most.
As a safety net, the Consolidated Omnibus Budget Reconciliation Act (COBRA) provides these individuals and their dependents with continuing health insurance coverage after a job loss, reduced work hours, or other qualifying events. However, the required payment for continuation coverage tends to be more expensive than the amount that active employees are required to pay since the recipient becomes responsible for all of the insurance cost.
Under the American Rescue Plan Act of 2021 (ARP), a $1.9 trillion COVID-19 relief package signed into law by President Joe Biden on March 11, 2021, the federal government will fully subsidize COBRA insurance premiums for assistance-eligible individuals (AEIs) from April 1, 2021 through September 30, 2021. This means that AEIs will not be required to pay any COBRA premiums during this period.
If your business is required to provide COBRA coverage and had or has to carry out layoffs or work hour reductions due to the impact of COVID, here are the things that you should keep in mind:
Who is entitled to this COBRA subsidy?
- An AEI is a COBRA-qualified beneficiary who meets the following requirements during the defined ARP benefit period:
- An employee or former employee (including the covered spouse, former spouse, and dependent child) who is eligible for COBRA coverage because of a qualifying event of a reduction in hours or involuntary termination from employment (except for gross misconduct) from November 1, 2019 – present
- Elects or elected COBRA coverage, or
- Elected COBRA coverage but later dropped it for failure to pay premiums, or
- Previously declined to elect COBRA coverage
What is the employer’s responsibility?
Employers are required to notify AEIs about the COBRA subsidy available to them as soon as possible but no later than May 31, 2021.
Upon receipt of the notice, these AEIs have 60 days to elect COBRA. However, this does not extend the period of COBRA coverage beyond the AEI’s original maximum period of coverage. The employer may also voluntarily give AEIs the option to enroll in a different coverage option available under the plan.
Though not required, the Department of Labor issued Model Notices which employers may use as a reference in writing COBRA notices in compliance with the ARP requirements. Failure to send COBRA notices to AEIs within the given time period can subject employers to excise tax penalties of $110 per day for each qualified beneficiary, as well as pay for the cost of medical expenses, attorney fees, and interests.
If an AEI has paid premiums for COBRA continuation coverage during this time, the payment will be credited against future payments or refunded in certain circumstances. An employer or plan is required to pay the COBRA premiums on behalf of the AEI which then entitles the employer or plan to a tax credit for the amount of the premium assistance.
How long is the federal subsidy?
As mentioned, an AEI is entitled to a full COBRA subsidy for up to six months from April 1, 2021 through September 30, 2021. However, this may be cut short if:
- The individual becomes eligible for coverage under Medicare or another group health plan but not including coverage of only excepted benefits (dental and vision care), a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA), or a health Flexible Spending Arrangement (FSA)
- The individual reaches the end of the maximum COBRA coverage period before September 30, 2021
For more information about COBRA subsidy under the ARP, employers may refer to this FAQs sheet prepared by the DOL and reviewed by the Department of the Treasury and the Internal Revenue Service.
If you require professional assistance navigating how to comply with COVID-19 legislation in your organization, our team of experts will be ready to help you. Contact your trusted Stephano Slack advisor or Stephano Slack HR Generalist Liz Costa at firstname.lastname@example.org. Visit www.stephanoslack.com/services/ today to learn of additional services available to you.