NAVIGATING THE NEW COBRA SUBSIDY

Monday, May 10 2021 12:45 Written by  Patricia Collins

 

Reprinted with permission from the April 16th edition of The Legal Intelligencer. (c) 2021 ALM Media Properties. Further duplication without permission is prohibited.

The American Rescue Plan Act of 2021 (ARPA), among other significant items, imposed new obligations for employers pursuant to the Consolidated Omnibus Reconciliation Act (“COBRA”). Specifically, ARPA requires employers to provide COBRA premium subsidies to certain employees from April 1, 2020 through September 30, 2021. The requirement comes with complicating definitions, retroactivity provisions, and new forms, creating a temporary compliance issue for employers. On April 7, 2021, the United States Department of Labor issued Model Notices and “FAQ’s” to assist with these compliance issues.

The COBRA subsidy is available from April 1, 2021 to September 30, 2021 to “assistance eligible individuals,” that is, individuals who are eligible for COBRA coverage as a result of an involuntary termination or a reduction in hours. The Act specifically excludes individuals who voluntarily terminate their employment. “Assistance eligible individuals” are not required to pay their COBRA premiums from April 1, 2021 through September 30, 2021. The employer or plan to whom the individual would normally pay premiums is entitled to a Medicare tax credit for the amount of the premium assistance. There is no guidance from the Department of Labor or the Internal Revenue Service regarding these tax credits.

There is another group of “assistance eligible individuals”: if an employee declined COBRA coverage, or if the employee elected COBRA coverage and later discontinued it, the employee now has a second chance to elect coverage and receive the subsidy (if the eighteen monthly COBRA eligibility period has not expired). Such employees must receive a notice of the right to elect subsidized coverage before May 31, 2021. The coverage will end when COBRA eligibility ends. These individuals can elect to begin the subsidized coverage on April 1, 2021, even if they return the election form after April 1.

Employers must provide a notice to both types of “assistance eligible individuals”, which necessarily includes employees who are involuntarily terminated, or who suffer a reduction of hours, between April 1, 2021 and September 30, 2021; and employees who were terminated between October 1, 2019 and April 1, 2021, who have not exhausted their COBRA coverage, and who declined COBRA coverage or discontinued it. Those individuals are entitled to reapply for COBRA benefits subject to the subsidy. Note that employees are not entitled to a refund of premiums already paid, and are not entitled to the subsidy if they are eligible for coverage under another plan (such as a spouse’s or new employer’s plan) or for Medicare.

The Department of Labor has issued forms of Notice for employers to provide to “assistance eligible individuals.” The notice must include forms necessary to establish eligibility, plan administrator information, a description of the additional election period, a description of the requirement to notify the employer or plan if the employee obtains additional coverage, and a description of the right to receive premium assistance and the requirements for entitlement. They can be found on the Department of Labor’s website.

Other action by the Department of Labor may complicate the application of the subsidy. In May 2020, the Department of Labor issued guidance that employers and employee benefit plans were required to disregard the “Outbreak Period”, that is, the period of the Covid-19 National Emergency, in determining deadlines for COBRA election periods (among other things). The guidance provided the Department of Labor on the COBRA subsidy states that the Outbreak Period guidance does not apply to this subsidy. The employee may still be eligible for COBRA pursuant to the Outbreak Period guidance, but they will not be eligible for the subsidy.

The Act permits employees to elect a different coverage option offered by the same employer, if the employer chooses to make this option available. The employee is entitled to the premium subsidy for the different plan provided that the premium for the different coverage is the same or lower than the premium for the coverage the employee had at the time of termination or reduction in hours. The notice must notify the employee of the right to select different coverage.

Although DOL issued guidance and model forms, there are still no regulations that would help to address some compliance issues ARPA creates for employers. The obligation on employers to identify previously terminated employees (that is, prior to April 1, 2021) who may now be eligible for the subsidy, and to provide notice to those individuals may present issues. While the Department of Labor has generated a form for individuals to request an application for the COBRA subsidy, the process of identifying “assistance eligible individuals” terminated prior to April 1, 2021, and providing them with notice by the deadline may well be daunting.

Complicating matters is the fact that many employers provided COBRA premium payments as a part of severance agreements. Department of Labor has provided no guidance as to whether the employer is entitled to the tax credit under these circumstances, or whether the employee is eligible for the subsidy nonetheless. This is the challenge for employees terminated prior to April 1, 2021. For employees terminated after April 1, 2021, the promise of the payment of COBRA premiums (at least until Septmeber 30, 2021) cannot provide consideration for a release of claims.

And, of course, many Covid – related terminations do not fit neatly into “voluntary” or “involuntary” terminations - employers were creative and interactive with employees in designating employees for terminations. The regulations provide no guidance regarding these mutual separations.

Employers should update their Notices as required by the Department of Labor, and take steps to identify “assistance eligible individuals” terminated prior to April 1, 2021. Employers will need to review severance agreements executed during the pandemic to assess whether there are other eligible employees under those agreements, or whether those rights have been released. Finally, employers will need to await guidance on the application of the Medicare tax credit. Of course, employers will scramble to comply quickly with these new rules, but the obligation to provide the subsidy will terminate on September 30, 2021.

Patricia Collins is a Partner and Employment Law Chair with Antheil Maslow & MacMinn, LLP, based in Doylestown, PA. Her practice focuses primarily on employment, commercial litigation and health care law. For advice on employment law issues relating to the COVID-19 crisis, or any employment law matters, contact Patricia Collins, 215.230.7500 ext. 126, or visit www.ammlaw.com.

Last modified on Monday, May 10 2021 14:58
Patricia Collins

Patricia Collins

Patty has been practicing law since 1996 in the areas of Employment Law, Health Care and Litigation, with extensive experience in advising employers and health care providers as well as complex litigation in federal and state courts. Patty’s knowledge of employment law includes the Employee Retirement Income Security Act; federal and state employment discrimination laws, and employment contracts and wage claims.

To view Patricia Collins' full profile, click here.

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