Congress Poised to Pass 100% COBRA Subsidy Through September

[This article has been updated from an earlier version.]

The federal government would pay 100 percent of COBRA insurance premiums for employees who lost their jobs because of the pandemic, and for their covered relatives, through Sept. 30, 2021, allowing them to stay on their company-sponsored health plan, under the Senate version of the stimulus measure. If the House concurs, President Joe Biden is expected to soon signed the measure into law.

Employers will obtain the subsidy, to be passed along to COBRA enrollees, through a payroll tax credit against employers’ quarterly taxes, explained Kathryn Bakich, Washington, D.C.-based national health compliance practice leader at Segal, an HR and employee benefits consultancy. “If the credit exceeds the amount of payroll taxes due, the credit would be refundable when employers submit Form 941,” their quarterly tax return, she said. The credit could also be advanced under rules that would be set by the Treasury Department.

The U.S. House of Representatives passed the
American Rescue Plan Act stimulus measure on Feb. 26, with a federal subsidy covering 85 percent of COBRA insurance premiums. The
U.S. Senate approved the bill on March 6, after it had
raised the subsidy to 100 percent of COBRA premiums. The bill has gone back to the House, which is expected to approve the amended Senate version.

Employer Concerns

“Employers are watching the COBRA subsidy provision in the stimulus bill warily, remembering the painful and confusing premium assistance credit program created in 2009” under the American Recovery and Reinvestment Act (ARRA), said Danielle Capilla, director of compliance and employee benefits at Alera Group, an employee benefits and financial services firm. “The process for that subsidy was complex, and many employers made mistakes with financial repercussions, and there are fears that the 2021 COBRA subsidy rules and process will be similar.”

She added that employers have expressed hope “that regulatory authorities provide clear and concise guidance on how to implement and handle COBRA subsidies and learn from the mistakes of the ARRA subsidy program.”

Timothy S. Klimpl, an attorney in the Stamford, Conn., office of law firm Carmody, advised that “Employers looking to dust off their COBRA subsidy playbook from ARRA, the 2009 recovery act, will need to add a few plays.” For instance, he noted, “aside from the differences in subsidy amounts, the new legislation seems to clearly provide eligibility to individuals who lose active coverage as a result of a reduction in hours, not only an involuntary termination of employment.”

Together with
the individualized one-year election and payment extensions announced in late February by the Department of Labor (DOL), “employers will be facing a tremendous administrative and compliance challenge implementing the COBRA subsidy” Klimpl said. “The only way to meet this challenge will be to get out in front of it and make a proactive plan for communicating to assistance eligible individuals, making those communications, and keeping good records of them to demonstrate fiduciary compliance.”

Six-Month Subsidy

According to the text of the American Rescue Plan Act (ARPA), the federal government’s subsidy for COBRA coverage premiums that ex-employees would otherwise be required to pay would:

  • Begin on the first day of the month following the legislation’s enactment, presumably April 1, 2021.

The relief is not available for employees who voluntarily end employment.

For eligible COBRA enrollees, the subsidy would last for six months at most, according to
an analysis by Segal of the House bill, and “would end earlier if the individual’s maximum period of COBRA coverage (generally, 18 months) ends earlier than September 2021. It would also end earlier if the individual becomes eligible for coverage under another group health plan or Medicare. Individuals would be required to notify their group health plan if they become eligible for such coverage and would be subject to penalty if they fail to do so.”

Options for Employees

Under the ARPA, employers could also give laid-off employees up to 90 days (following COBRA-notice receipt) to elect to enroll in a different group health plan offered by their employer. The premium for the alternative coverage choice cannot be higher than the premium for the plan in which the employee had been enrolled, among other restrictions.

For affected employees or covered relatives, “this could be a huge relief, and not just financially,” said Kim Buckey, vice president of client services at DirectPath, a benefits education, enrollment and health care transparency firm. “It means they won’t have the burden of finding—and learning the ins and outs of—a new plan, potentially finding a new provider, or risk going without coverage at all while they’re trying to find new employment during the pandemic. If the employer chooses to allow COBRA beneficiaries to change plan options when they elect COBRA coverage, that could provide additional financial relief.”

Reviewing the Basics: COBRA Premiums

Employers may require terminated workers who choose to keep their employer-sponsored health plan
for up to 18 months to pay for COBRA coverage, with premiums limited to the full cost of the coverage plus a 2 percent administration charge. That cost, however, is not affordable for many newly unemployed workers.

During the pandemic, some employers
chose to pay COBRA coverage for employees who were laid off or who lost group health plan coverage when they were furloughed or had their hours reduced.

Enrollment Period

Under the ARPA, a terminated worker who is eligible for assistance and who hasn’t elected COBRA coverage by April 1, or who elected COBRA coverage but then discontinued it, may elect COBRA coverage during an enrollment period starting April 1 and ending 60 days after the date on which the COBRA notification was delivered.

Notice Requirements

The ARPA would require employers to amend COBRA notice forms by including as a separate document information including:

  • The forms necessary for establishing eligibility for COBRA premium assistance.

  • The name, address and telephone number necessary to contact the plan administrator and any other person maintaining relevant information in connection with premium assistance.

  • A description of the extended election period provided by the legislation.

  • A description of the option to enroll in different coverage, if adopted by the employer.

The federal government would be required to issue model notices within 30 days of enactment. Plans would also be required to notify individuals if their subsidy will end before Sept. 30, 2021, although this notice would not be required if their subsidy is ending due to the individual’s eligibility for other coverage.

“Employers need to prepare now to send out notices and inform individuals about the subsidy, and they will have to send out a notice when the subsidy terminates,” Bakich said.

In addition to providing the required notices, plan sponsors of group health plans should also consider whether they will permit individuals to enroll in a different—but not more expensive—plan option than the one in which they were enrolled when coverage was lost, Bakich said. “Plan sponsors would have the option to permit this and would need to include the availability of that option in the notices they send out,” she noted.

There is also a separate notice that plans will need to send to assistance-eligible individuals when their periods of premium assistance are due to expire, noted Klimpl. He expects “proof of these special notices to become low-hanging fruit for ERISA compliance investigations conducted by the DOL’s Employee Benefits Security Administration over the next couple of years.”

Administrative Issues

“Employers should be aware of administrative issues related to notifying individuals that may have had a COBRA event [i.e., loss of employment] in the last year, and become aware of how to address situations where the employer may have subsidized a portion of the COBRA premium,” Bakich said.

In anticipation of the measure’s enactment and the subsidy’s April 1 effective date, employers should start “working hard to gather the names of COBRA qualified beneficiaries who had a qualifying event in 2020 so they can make sure that anybody who is eligible for COBRA during the six-month subsidy period gets a notice and ability to elect COBRA,” Bakich said. Generally, this would include “anyone who had—or could have had—COBRA as far back as November 2019, because their 18 months of coverage would extend through April 2021,” she pointed out.

Working with TPAs

Buckey noted that “most employers today outsource COBRA administration, so it would fall on the administrator to manage election changes, notice requirements and billing.” The model COBRA notices expected shortly “should ease the burden of revising current notices,” she said, and “since most plans are silent on election changes for COBRA, it’s unlikely that any plan amendment would be required to adopt the plan option change provision.”

She added, “It’s worth noting that the penalty for COBRA beneficiaries who fail to notify the plan when they become eligible for other group coverage is $250, and in the case of intentional failure to notify, the greater of $250 or 110 percent of premium assistance provided after loss of eligibility”—a matter about which employers should inform COBRA enrollees.

While employers may be able to outsource administration of the subsidy to their COBRA third-party administrators (TPAs) to some extent, Klimpl said, “employers ultimately remain responsible for compliance. TPAs will also depend on employers to report terminated employees and beneficiaries who may be newly eligible for the special election and subsidy, including in some cases several months after a separation from employment that occurred during the [COVID-19] outbreak period,” he explained. 

Effect of COBRA Deadline Extension

While employers respond to legislative developments regarding COBRA, they should stay aware of new regulatory guidance affecting COBRA deadlines for plan administrators and terminated employees.

new extended delay guidance from the Department of Labor in Disaster Relief Notice 2021-01, issued on Feb. 26, “complicates administration of the COBRA subsidy in that individuals are allowed an extension of time to elect COBRA,” Bakich said. “Those individuals who are eligible for delays will also be covered by the COBRA subsidy” if they meet the eligibility requirements, she noted.

Noted Klimpl, “Hopefully, the DOL will be issuing clear guidance and compliance assistance to clarify the interplay between the new COBRA subsidy and the individualized one-year extensions announced last month.”

Related SHRM Articles:

Agencies Revise—and Complicate—COBRA Deadline Extensions,
SHRM Online, March 2021

House Passes $1.9 Trillion COVID-19 Economic Relief Bill,
SHRM Online, March 2021

Biden Proposes Temporary Subsidies for COBRA Coverage,
SHRM Online, January 2021