On March 11, 2021, President Biden signed into law the American Rescue Plan Act of 2021 (“ARPA”), a $1.9 trillion COVID-19 economic stimulus bill which provides eligible qualified beneficiaries with up to six months of free COBRA continuation coverage during a temporary COBRA premium subsidy period beginning April 1, 2021 and ending September 30, 2021.
The full COBRA premium subsidy is available to any qualified beneficiaries (that is, current or former employees and their spouses and dependent children) who have lost or who will lose employer-sponsored group health plan coverage due to the employee’s involuntary termination of employment or reduction of hours and whose 18-month COBRA continuation coverage period includes any portion of the six-month COBRA premium subsidy period (April 1, 2021 to September 30, 2021). For example, a former employee who lost group health plan coverage and whose 18-month COBRA continuation coverage period began on November 1, 2019 would be eligible for the premium subsidy for April 2021, the final month of his COBRA period.
Qualified beneficiaries who are eligible for the COBRA premium subsidy fall within the following three groups:
Group 1: Those who first become eligible for COBRA continuation coverage during the six-month subsidy period (April 1, 2021 to September 30, 2021) and who elect COBRA coverage;
Group 2: Those who, on April 1, 2021, had already elected and are enrolled in COBRA continuation coverage; and
Group 3: Those who, on April 1, 2021, could have been enrolled in COBRA continuation coverage but were not, either because they did not elect COBRA continuation coverage or did elect it but discontinued it before April 1, 2021 (for example, because they stopped paying the required premiums).
The COBRA premium subsidy applies to all COBRA-subject employer-sponsored group health plans (such as medical, dental and vision plans), except for health flexible spending arrangements (health FSAs) offered under Internal Revenue Code Section 125 cafeteria plans.
Employers, working with their COBRA administrators, must act promptly to comply with the new COBRA premium subsidy rules, including significant new notice requirements, as follows:
- Identify Qualified Beneficiaries Who Are Eligible for the Premium Subsidy. Employers and COBRA administrators will need to work together to promptly identify all subsidy-eligible qualified beneficiaries who fall into Group 1, Group 2 or Group 3 above, that is, all current and former employees (and their spouses and dependent children) who have lost or who will lose employer-sponsored group health plan coverage (over than health FSA coverage) due to the employee’s involuntary termination of employment or reduction of hours and whose 18-month COBRA continuation coverage period includes any portion of the six-month COBRA premium subsidy period.
- Timely Provide All Required COBRA Notices. Employers and COBRA administrators will also need to work together to timely provide the following new COBRA notices:
- COBRA Election Notice (With Required Additional Subsidy Information) for Qualified Beneficiaries in Group 1. Subsidy-eligible qualified beneficiaries who fall into Group 1 above must be timely provided with a COBRA election notice that includes certain required additional information about the COBRA premium subsidy. ARPA requires the U.S. Department of Labor (DOL) to issue a model COBRA election notice, including the required additional COBRA premium subsidy information, no later than April 10, 2021 (that is, within 30 days after ARPA’s March 11, 2021 enactment date).
- Subsidy Notice for Qualified Beneficiaries in Group 2: Subsidy-eligible qualified beneficiaries who fall into Group 2 must be provided, no later than May 31, 2021 (that is, within 60 days after April 1, 2021), with a subsidy notice (supplementing the COBRA election notice they previously received) that includes the required additional information about the COBRA premium subsidy. The DOL must issue a model subsidy notice no later than April 10, 2021.
- “Second-Chance” Election Notice for Qualified Beneficiaries in Group 3. Subsidy-eligible qualified beneficiaries who fall into Group 3 must be given a second chance to elect COBRA continuation coverage and must be provided, no later than May 31, 2021, with a “second-chance” COBRA election notice that includes the required additional information about the COBRA premium subsidy. The DOL must issue a model “second-chance” COBRA election notice, including the required additional COBRA premium subsidy information, no later than April 10, 2021.
- Notice of Expiration of COBRA Premium Subsidy Period. Any subsidy-eligible qualified beneficiary in Group 1, Group 2 or Group 3 who has elected COBRA continuation coverage that is subsidized for all or any portion of the six-month subsidy period (April 1, 2021 to September 30, 2021) must receive, between 45 and 15 days before the date that his or her premium subsidy period will expire, a notice that informs him or her of the imminent expiration of the subsidized coverage and prominently identifies the exact expiration date. The DOL must issue a model expiration notice no later than April 25, 2021 (that is, within 45 days after ARPA’s March 11, 2021 enactment date).
Employers and their COBRA administrators must act quickly to comply with these new rules. We recommend that employers and their COBRA administrators should immediately start identifying all qualified beneficiaries who are eligible for the new COBRA premium subsidy. We also recommend that employers and their COBRA administrators wait for the DOL to issue the required model notices and to use those model notices to meet the new COBRA notice requirements. We hope and expect that the DOL will issue the model notices in the very near future. We also hope and expect that the DOL will issue additional guidance clarifying whether the deadlines for providing any of the new COBRA notices would be extended, due to the COVID-19 outbreak period, under guidance (Disaster Relief Notice 2021-01) which the DOL issued on February 26, 2021. For more detailed information about the new COBRA premium subsidy and other employee benefits and executive compensation-related provisions of ARPA, please read our March 18, 2021 Alert, Employee Benefits Group News: A Summary of Key Employee Benefits and Executive Compensation Provisions in the American Rescue Plan Act.