Two recent governmental changes were announced that will affect the availability and administration of COBRA benefits in 2021. This letter summarizes these changes and what they mean for your employees and your company.
EBSA Disaster Relief Notice 2021-01
In March of 2020, the Department of Labor (DOL), Department of Treasury (Treasury), and Internal Revenue Service (IRS) extended certain benefits-related deadlines for HIPAA special enrollment, COBRA elections, appeals, external reviews, and ERISA notices and disclosures. The relief was provided pursuant to ERISA §518 and Internal Revenue Code §7508A, which allow certain compliance deadlines to be disregarded for a period of up to one year in the event of a public health emergency. Although the 2020 notice provided relief through the end of the outbreak period (60 days following the end of the National Emergency, which is ongoing), the one-year limit specified in §518 and §7508A expired on February 28, 2021.
On March 1, 2021, EBSA Disaster Relief Notice 2021-01 (Notice) was issued by the DOL and approved by IRS and Treasury. The notice clarified that the one-year extension period allowed under §518 and §7508A would be applied on a case-by-case basis, meaning that each individual’s deadline will be disregarded until the earlier of:
- One year from the date that the individual was first eligible for relief, or
- The end of the outbreak period (60 days after the National Emergency ends).
For example, if an individual’s initial COBRA election period would have expired on March 15, 2021, the individual will have until the earlier of March 14, 2022 or the end of the outbreak period to make an election. In no case will the delay exceed one year.
The Notice encourages plan administrators and fiduciaries to
- notify participants who are nearing the end of the relief period and are at risk of losing rights under the plan, and
- make participants aware of other coverage options that may be available to them, including the opportunity to obtain coverage through the Health Insurance Marketplace.
American Rescue Plan Act
In a separate action, Congress passed the American Rescue Plan Act (“ARPA”), which provides a 100% subsidy on COBRA medical, dental, and vision premiums for “assistance eligible individuals” for the period beginning April 1, 2021 and ending September 30, 2021.
How is the subsidy funded?
The COBRA subsidy is paid by the federal government. But ARPA requires employers to front the full cost of premiums owed to a plan administrator. This means that:
- The employer pays the COBRA premiums during the subsidy period, but is made whole by claiming a tax credit against the employer’s 1.45% Medicare Hospital Insurance (“HI”) tax, reduced by any credits allowed under other COVID-19 relief legislation, such as the CARES Act or the Families First Coronavirus Response Act (“FFCRA”). In your case, this means that subsidy eligible individuals will no longer submit a COBRA premium payment during the subsidy period. You as the self-funded employer will simply cover the cost of claims like any other eligible enrollee.
- Subsidy payments that exceed the allowable tax credit in any quarter are treated as a tax overpayment and employers will become eligible for a direct refund. The technical aspects of the tax credit, such as the timing of the credit and the mechanics for claiming it, have yet to be explained.
Who is eligible for the subsidy?
An assistance eligible individual is any individual (including a covered dependent) who loses coverage as the result of a reduction in hours or involuntary termination (for reasons other than gross misconduct) and is not eligible for other group health coverage or Medicare. The class includes those:
- who are currently enrolled in COBRA or become eligible during the subsidy period;
- who did not elect COBRA during their initial election period, but are still within the 18-month coverage period; and
- who elected COBRA during their initial election period but let the coverage lapse, and are still within the coverage period.
A dependent child who loses coverage because of age (i.e., reaches age 26) is not eligible for the subsidy.
How do participants receive the COBRA subsidy?
Participants eligible for the subsidy who are already enrolled in COBRA as of April 1, 2021 are not required to take any action; they will automatically receive the subsidy. Current enrollees must be notified of the subsidy, and individuals who have already paid premiums for any portion of the April-September subsidy period must be reimbursed for the amount previously paid. Employers may apply for a payroll tax credit for the reimbursed amounts, as described above.
ARPA requires that a new election period be offered to assistance eligible individuals who declined COBRA coverage or who previously elected, then discontinued, COBRA coverage before April 1, 2021. Coverage for these assistance eligible individuals will be effective on April 1; no premiums will be required for any period prior to that date. Affected individuals may only take advantage of the subsidy if they are still within their 18-month COBRA coverage period. For example, an individual who did not elect COBRA coverage and whose coverage period would have ended on May 31, 2021 may be eligible for the subsidy for the months of April and May, but the individual’s COBRA coverage will expire on May 31. ARPA does not extend the COBRA eligibility period.
Election notices describing the premium subsidy must be delivered to assistance eligible individuals prior to May 31, 2021. Plans must send a new election form or add a disclosure form to existing election forms; the new forms must include:
- forms necessary to establish eligibility for premium assistance,
- contact information for the plan administrator or other persons maintaining information related to premium assistance,
- a description of the extended election period, and (iv) a description of the individual’s obligation to notify the plan of the existence of other group health plan coverage.
The DOL will release sample model notices and model election forms on or before April 11, 2021.
Assistance eligible individuals must elect coverage within 90 days of the date of the election notice; the enrollment extensions provided under EBSA Disaster Relief Notice 2021-01 (described above) are not recognized. An employer may allow enrollees to elect a plan that is different from the plan in which he or she was enrolled prior to the qualifying event if: (i) the premium for the alternate coverage is not more than the coverage in which the employee is currently enrolled and the alternate plan is offered to similarly situated employees; (ii) the coverage is not an excepted benefit, such as dental and vision only; and (iii) the group health plan is not an FSA or HSA.
When does the subsidy end?
The premium subsidy will end on the earlier of the first day the individual becomes eligible under another group health plan, the first day the individual becomes eligible for Medicare, the date the individual’s 18-month COBRA coverage period expires, or September 30, 2021.
How do these rules affect employers not subject to COBRA?
Very small employers (under 20 employees) are not subject to COBRA; however, many states, including California and Arizona, offer “mini COBRA” programs that apply to these small employers. Although ARPA expressly includes “mini-COBRA” plans offered at the state level in its definition of COBRA continuation coverage, it does not explain how the subsidy will be administered for state plans. Additional guidance is expected in the coming weeks.
What are the next steps?
Pinnacle will work with you to identify individuals who may be affected by ARPA and the EBSA Disaster Relief Notice 2021-01. As your COBRA administrator, we will:
- manage COBRA enrollment deadlines on an individual basis;
- update COBRA enrollment materials to include information about the subsidy;
- provide notice of the subsidy to current COBRA enrollees and to assistance eligible individuals who have received enrollment notices but have not yet enrolled;
- provide a second enrollment period for assistance eligible individuals who did not elect (or elected and later discontinued) COBRA coverage but are still within the COBRA coverage period;
- refund, within 60 days of the date payment was made, COBRA premiums paid for the subsidy period;
- notify COBRA-eligible individuals who are nearing the end of the extended enrollment period of other coverage options, including coverage through Covered California and the Marketplace; and
- notify assistance eligible individuals when their ARPA subsidy will expire. Notice will be given at least 15, but no more than 45 days before expiration.
We recognize the challenges that come with these new policy changes, and we want to assure you that we remain dedicated to serving our members. As always, we’re here to help with any questions regarding these new requirements. Please contact your Account Manager with any questions or concerns.
President, Pinnacle Claims Management, Inc.