Unanswered Questions About the ARPA’s Cobra Subsidies

The American Rescue Plan Act of 2021 (ARPA) creates a 100% COBRA premium subsidy for certain “assistance eligible individuals” beginning April 1, 2021, through September 30, 2021.  For more information about the COBRA premium subsidy, click here. A number of questions about the subsidy remain unanswered, including the following –

• • What types of terminations of employment are considered “involuntary” so as to qualify an individual as “assistance eligible”?

• • How will the subsidies impact the extended COBRA notice, election, and premium payment obligations? For more information about the COBRA extensions, click here.

• • What steps must an employer take to locate and notify former employees who qualify as assistance eligible individuals?

• • How does an employer earn the payroll tax credits for these COBRA subsidies?

• • The ARPA provides that for fully insured group health plans, the insurer, and not the employer, qualifies for the payroll tax credits. In this case, must the employer continue to pay the premiums to the insurer for the enrollment of assistance eligible individuals?  Absent further guidance, an employer sponsoring a fully-insured group health plan should communicate with its insurer to confirm the payroll tax credits will be returned to the employer in exchange for the employer’s fronting the premiums.

• • For self-insured group health plans with stop-loss coverage that applies to claims incurred by COBRA qualified beneficiaries, will the employer or the stop-loss insurance carrier qualify for the tax credits?

• • Under the special COBRA enrollment rights, must the employer offer the subsidized COBRA coverage, or simply the right to enroll in coverage?

• • How does the subsidy apply in the case of severance or other arrangements that provide for alternative forms of continuation coverage?

A number of new COBRA notice requirements are imposed upon employers under the ARPA.  Specifically, employers must provide notices to eligible qualified beneficiaries who are already enrolled in COBRA coverage and qualify as “assistance eligible individuals” of their eligibility for the subsidy by May 30, 2021.  For any employees who would qualify as new “assistance eligible individuals” as a result of an involuntary termination of employment or reduction of hours from April 1, 2021, through September 30, 2021, COBRA notices must include information about the subsidy.  Finally, the ARPA requires employers to notify any “assistance eligible individuals” who elected free COBRA coverage that such free coverage is expiring within 15 to 45 days of the expiration.

We are eagerly waiting for the DOL to issue the new model notices.  In the meantime, plan administrators should immediately begin gathering data about individuals who may be eligible for the COBRA subsidies or the extended COBRA enrollment rights.  Plan administrators should also contact their payroll providers and COBRA administrators to ensure the applicable systems are in place for providing the subsidies, sending the required notices, and applying for the payroll tax credits.  Finally, it may be necessary for plan administrators of fully-insured group health plans to contact their insurers to negotiate how the payroll tax credits will apply and who will front the cost of the premiums.