Much has been written about the stimulus checks and vaccine aid that are major elements of the American Rescue Plan Act of 2021 (ARPA), which was enacted last week, but the Act also includes a number of other lesser-known elements designed to provide relief to struggling Americans, and employers need to take notice.
Of particular note is a provision of ARPA that provides COBRA subsidies to eligible individuals, beginning on April 1, 2021 and lasting through September 30, 2021. Similar to the COBRA subsidies that were provided under the American Recovery and Reinvestment Act of 2009 (ARRA), the ARPA subsidies will be available to those individuals who have experienced a loss of coverage due to an involuntary termination or reduction in hours. However, unlike the ARRA subsidies, which required participants to pay 35% of the COBRA premium otherwise due, the ARPA subsidy will be a full subsidy, meaning the individual will not have to pay any cost toward the premium due during the assistance period.
Under certain circumstances, eligible individuals may also have the opportunity to switch from one group health plan offered by the plan sponsor to another, less-expensive plan.
The ARPA subsidy will be available to all individuals whose loss of coverage is due to an involuntary loss of work for reasons other than gross misconduct, even if that reason is not related to the COVID-19 pandemic. The subsidy will not be available to those individuals who lose coverage due to a voluntary termination or to those individuals who are eligible for other group health coverage or Medicare.
The subsidy will not only be available to those eligible individuals who lose coverage beginning on April 1, 2021 or later but also to any eligible individual who lost coverage due to an involuntary loss of work and is still within the 18-month COBRA period. This includes employees who did not elect COBRA coverage during their original election period, as well as those who initially elected COBRA but let their coverage lapse. Eligible individuals who are not currently participating in COBRA will have a window of at least 60 days to elect COBRA coverage prospectively, meaning there is no requirement that they go back and pay retroactive premiums to the original loss of coverage.
The good news for employers is that in all cases, the maximum COBRA period is still counted from the date of the original qualifying event, so even if an individual did not elect COBRA when he/she originally became eligible, a late election now will not extend the COBRA coverage period.
The ARPA subsidies are expected to be paid by the plan sponsors, who will then receive a payroll tax credit each quarter in the amount of the premiums they would have received if not for the COBRA subsidy. The subsidy will not be included in the gross income of the individual receiving the subsidy—essentially making them tax-free.
All of these new provisions come with substantial new notification requirements on the part of the plan administrator. For eligible individuals who become entitled to elect COBRA at any point from April 1 through September 30, 2021, the COBRA election notice must include information about the continuant’s rights and obligations under the Act. This can be done by either amending the current notice or by including a separate page with the supplemental information. A model notice is to be provided by the Department of Labor within 30 days of ARPA’s enactment.
For those eligible individuals who previously failed to elect COBRA or discontinued it and are still within their 18-month COBRA period, a new notification must be provided within 60 days of April 1, 2021 letting the individual know of their new rights. Additionally, the plan administrator must provide notice to continuants when the premium assistance expiration date is approaching. The Department of Labor will also be providing model notices for these requirements, but it has up to 45 days after ARPA’s enactment to do so.
Failure to provide these new notices in a timely fashion will be considered to be a failure to meet the COBRA notice requirements, which can result in severe penalties. Therefore, it is important for employers to act quickly to make sure their procedures and communications are updated to ensure compliance.