COBRA and the ARPA – What You Need to Know if You Have 20 or More Employees
April 8, 2021
By Scott Lyon, Senior Vice President
Additional guidance was provided on April 7, so now we can fill in a few gaps.
Who is Eligible?
The short answer is employees and their enrolled dependents (known as COBRA beneficiaries) who lost eligibility to their employers’ group health plans through an involuntary termination or reduction in hours in the time period of 18 months prior to April 1, 2021 – so, all the way back to November of 2019.
When Can COBRA Start?
Your employees and their eligible dependents get a second bite at the COBRA apple. COBRA can start on one of three dates:
- The original date of COBRA eligibility defined as the date they originally lost coverage due to an involuntary termination or had a reduction in hours making them ineligible to continue in your group health plan.
- For a COBRA beneficiary who elected COBRA, paid a couple of months and then stopped paying for COBRA, they can elect to restart COBRA the day after they lost health insurance because they stopped paying COBRA premiums. In this example, there cannot be a break in coverage. The COBRA beneficiary would need to pay all back premiums owed. (See special election period below for additional information).
- April 1, 2021
ARPA COBRA Subsidy:
The above employees and their dependents are eligible for 100% (and can include the 2% surcharge for administration) employer-subsidized COBRA coverage for the six-month period beginning April 1, 2021 – September 30, 2021. However, subsidized coverage will end if the individual becomes eligible for coverage under another employer’s group health plan or becomes eligible for Medicare. Think of it this way: The subsidy runs until the earliest of the following events:
- 18 months from the date of the COBRA qualifying event; or
- The date the COBRA beneficiary becomes Medicare-eligible, or
- The date the COBRA beneficiary becomes eligible for the group health plan of a new employer or their spouse’s employer group health plan, or
- September 30, 2021.
Who Pays for the Subsidy?
You do as the employer. Then you may claim the total cost of the COBRA premium subsidy by taking a credit against your Medicare tax on your quarterly IRS Form 941. In any case where the premium subsidy is greater than the Medicare tax withheld and due on the 941, then you may apply for a refund for the remaining difference. Employers may also apply for an advance from the federal government for the amounts of the premium subsidies, however, there is not yet guidance on how that can be done.
What Must Happen Next and Who is Responsible?
There are a couple of steps of which you must be aware. Who takes these steps depends on whether your COBRA plan is self-administered or if you have hired a COBRA administrative company. Regardless, the steps are:
- Subsidized coverage notification: COBRA beneficiaries who become eligible for coverage between April 1 – September 30, 2021 must be given a notice regarding the COBRA subsidy.
- Subsidized coverage period is ending notification: COBRA beneficiaries who are enrolled in subsidized COBRA coverage must be provided a notice that their subsidized coverage is ending. This must happen between 15 days and 45 days prior to the date the subsidized coverage ends.
- There is also a special election period and, of course, a notice that goes along with that. This applies to qualified beneficiaries who are not currently enrolled in COBRA, but who would be eligible for subsidized COBRA coverage if they had elected or continued COBRA. The plan administrator must provide a notice to these individuals by May 30, 2021. The notice must explain the opportunity to elect subsidized COBRA coverage and give them 60 days from the date of the notice to elect subsidized COBRA coverage.
- Opportunity to change plans: If your company offers several health insurance plan options, the ARPA additionally gives employers the option of allowing individuals who are eligible for subsidized COBRA coverage a 90-day window to change their election going forward to a plan with a lower premium.
What happens next? This depends on a few things. First, review the guidance that has been issued by the DOL by clicking through this link: https://www.dol.gov/agencies/ebsa/laws-and-regulations/laws/cobra/premium-subsidy If you have hired SBAM as your COBRA administrator, we will handle most of the requirements, but we need your help in determining which of the people that have left your health plan have left involuntarily.
Here is What We are Doing for Customers of SBAM COBRA Administration:
In short, we will handle this for you, but we need your help.
- Be on the look out for a communication from us asking for your help in identifying former employees who have been involuntarily terminated or had a reduction in hours that resulted in the loss of coverage. This will come to you via email along with an attached list of people. Simply make a note as to whether the person was terminated voluntarily (they quit) or involuntarily (fired, laid-off, furloughed, etc.) Also, if they were fired for gross misconduct, please let us know that as well.
Once the DOL provides model notices, we will:
- Send individuals not currently enrolled in COBRA a special election notice that provides the 60-day window to elect subsidized COBRA coverage.
- Send individuals currently enrolled in COBRA a subsidy notice.
- For employees who experience an involuntary termination or a reduction in hours that causes the employee to lose plan eligibility between April 1, 2021, and September 30, 2021, we will include the subsidy notice with the employee’s COBRA election notice.
- We will track qualified beneficiaries’ subsidy expiration dates and send these individuals a notice between 15 and 45 days before the subsidy expires.
For our COBRA customers, please be on the lookout for our communication and turn that information around as soon as possible. If you have questions, please reach out to your COBRA administrator.