On March 11, 2021, the American Rescue Plan Act (ARPA) was signed into law which provides a COBRA subsidy as outlined in our previous blog. On April 7, 2021, the Department of Labor (DOL) issued FAQs tailored to individuals and provided model notices.
The FAQs do clarify some questions. However, we still need guidance from the IRS to answer other critical questions not answered by the DOL. Key takeaways from the FAQs are below.
- Eligibility (reduction in hours) – to be eligible for the subsidy, an individual must have been eligible for COBRA due to an involuntary termination or reduction in hours. The FAQs indicate reduction of hours include reduced hours due to change in a business’s hours of operations, a change from full-time to part-time status, taking of a temporary leave of absence, or an individual’s participation in a lawful labor strike, as long as the individual remains an employee at the time that hours are reduced. They do not provide examples of involuntary termination.
- Qualified beneficiaries (QB) have independent election rights for subsidy – similar to standard COBRA law, each QB has a right to enroll in COBRA independently. If a QB did not enroll in COBRA when first eligible and that QB would be an Assistance Eligible Individual (AEI), they may enroll and qualify for the subsidy.
- Extended deadline relief provided in the 2020 IRS/DOL Joint Notice not applicable to special subsidy election – in 2020, the IRS and DOL extended deadline relief for electing COBRA and making payments (Joint Notice). The DOL also clarified the extended deadline relief in EBSA Notice 2021-01. Refer to our blog regarding the extended deadline relief. The FAQ clarifies that the extended relief does not apply to the special election notice deadline or the 60 day election deadline related to the COBRA subsidy. In other words, employers must provide notices on or before May 31, 2021 and if any AEIs miss the 60-day window to enroll in COBRA for the subsidy, they will not be eligible for the subsidy. Even if they miss the subsidy enrollment deadline, they may still enroll in COBRA if they are still within their extended deadline period, but they won’t be eligible for the subsidy.
- Individuals covered under an individual market health insurance coverage can switch to COBRA – potential AEIs who currently have health coverage through a Health Insurance Marketplace such as HealthCare.gov or an individual policy outside of the Marketplace, may enroll in COBRA and obtain the subsidy. Those who enroll in COBRA with the subsidy are no longer eligible for a Marketplace premium tax credit or advance payments of the premium tax credit they would normally qualify for during the subsidy period. These individuals must contact the Marketplace to inform them of enrolling in COBRA or they may have to pay back any advance payments of the premium tax credits made on their behalf while covered under the Marketplace and COBRA. Another option these individuals have is to terminate their Marketplace coverage prospectively if they enroll in COBRA. COBRA QBs will need to investigate whether they can drop individual policy coverage with the insurer.
- Involuntarily terminated due to gross misconduct – as with standard COBRA law, an employee’s involuntary termination of employment for gross misconduct (and dependents) are not eligible for COBRA or the subsidy. We are hoping the IRS will clarify other situations that may or may not qualify as an involuntary termination, e.g., an employee refusing to come back to work after the employer asks them to return, or an employee terminating to take care of children at home during the pandemic.
- Appealing the employer’s determination of AEI status – the DOL has clarified that individuals can appeal their status as an AEI with the employer. If employers do not consider the individual as an AEI, e.g., they voluntarily terminated, the individual can complete a “Request for Treatment as an Assistance Eligible Individual” form (see below) or they may contact the DOL who may then reach out to the employer.
The DOL provides 4 model notices and a Summary of COBRA Premium Assistance Provisions under ARPA form. Below is a description of each DOL document.
- Model General Notice and COBRA Continuation Coverage Election Notice – this notice may be provided to qualified beneficiaries (QB) with qualifying events occurring from April 1, 2021 – September 30, 2021. In addition to the new General Notice, the DOL indicates that the “Summary of the COBRA Premium Assistance Provisions under ARPA” (see below) should be provided as well to satisfy the notice requirements of ARPA.
- Model Notice in Connection with Extended Election Period – this notice may be used to provide the election notice to qualified beneficiaries currently enrolled in COBRA continuation coverage due to reduction in hours or involuntary termination (Assistance Eligible Individuals), as well as those who would be Assistance Eligible Individuals, if they had elected and/or maintained COBRA continuation coverage. The DOL indicates the “Summary of COBRA Premium Assistance under ARPA” (see below) should be included as well.
- Model Notice of Expiration of Premium Assistance – this notice is to be provided to Assistance Eligible Individuals 15 – 45 days before their COBRA subsidy expires.
- Model Alternative Notice – this notice is for use by employers whose plans are not subject to COBRA but have insured coverage subject to state continuation requirements between April 1, 2021 – September 30, 2021. For example, small employers with less than 20 employees who are not subject to COBRA would use this form.
- Summary of COBRA Premium Assistance Provisions under ARPA and AEI request form – this document is a summary of the COBRA subsidy and includes a “Request for Treatment as an Assistance Eligible Individual” form. The form should be completed by each COBRA eligible member who is requesting the subsidy. The form has a section for the employer to approve or deny the eligibility of the individual. It is not clear whether employers who have already confirmed AEIs (employees who had a qualifying event of reduced hours or involuntarily termination) must complete the employer portion of the form. We see no need for employers to approve already confirmed AEIs and it could add hours to the subsidy process. The form would be necessary if the employee is requesting the subsidy and the employer did not already confirm the individual as an AEI. Hopefully, additional guidance for the employer section of the form will be provided.
These notices provide subsidy information, but the notices do not provide detailed information about the extended deadlines for COBRA elections and payments under the 2020 IRS/DOL Joint Notice and DOL Notice 2021-01. Employers and service providers will need to evaluate whether additional information about the extended COBRA deadlines should be included with the model notices.
Employers and service provider will need to determine the best form of notices to provide to COBRA QBs with qualifying event dates between April 1, 2021 – September 30, 2021, and those eligible COBRA QBs who already received their qualifying event election notice. The ARPA law indicates that “notification may be met by amendment of existing notice forms or by inclusion of a separate document with the notice otherwise required.” The law provides notice flexibility to employers and service providers.
This guidance is the first step in helping employers and service providers to administer the COBRA subsidy. Hopefully, the IRS guidance will give us answers to all the other critical questions so that employers can accurately apply the new law to their COBRA administration. We are hopeful they will provide relief for good-faith compliance considering employers have 60 days to implement.
TRI-AD is working diligently to incorporate these rules and notices into our current COBRA processes.
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