New COBRA LAW Starts Today! 8 Employer Q&A

Written by Joanna Morrow

Joanna Morrow, Principal and Founder of Employer Benefits & Advice, is an employer consultant and advocate who has worked in the employee benefits industry for over two decades. She works diligently to help employers overcome obstacles in their business by sharing her expertise in Human Resources, Benefits & Compensation, Process Mapping, Risk Management and ERISA/DOL/IRS compliance. She is a licensed life and health insurance professional in the State of Arizona and is an active member of the National Association of Health Underwriters (NAHU).

New COBRA LAW Starts Today! 8 Employer Q&A

On March 11, 2021, President Biden signed into the law the American Rescue Plan Act (ARPA) of 2021.

This law also introduced the COBRA Premium Assistance Plan which provides for the following:

  1. To relieve existing COBRA participants of the financial burden of paying their COBRA premiums, by transferring that financial responsibility to the employer sponsoring the offer of COBRA. This provision within ARPA was named the COBRA Premium Assistance Plan.
  2. To offer a “second bite at the apple” for:

eligible employees who initially waived COBRA

OR

eligible employees who initially elected COBRA, but then stopped paying premiums at some point

Who is NOT eligible for the COBRA Premium Assistance?

The following employees are not eligible for COBRA Premium Assistance:

  1. Employees who quit their job, (referred to as “voluntary termination”)
  2. Employees who were terminated due to gross misconduct (not as common)
  3. Employees whose 18-month COBRA period will be reached prior to April 1st, 2021

Who IS eligible for COBRA Premium Assistance?

Eligible individuals for this program are:

Employees and their covered dependents (e.g. spouse, children) who were, at one point, enrolled in the employer-sponsored health insurance; and lost access to that health coverage because of either a:

  • Reduction in hours; or
  • Involuntary termination

When does the COBRA Premium Assistance Plan go into effect?

Under this new law, eligible individuals can apply to have their COBRA premiums paid 100% by the employer, for up to 6 months, beginning on April 1st, 2021. This amount includes the 2% administrative fee charged by most COBRA administrators.

April 1st, 2021 <————————————-> September 30th, 2021

When must an employee have become eligible for COBRA in order to qualify for the Premium Assistance Plan?

Because in Arizona, the maximum eligibility period for COBRA is 18 months, employees who became eligible for COBRA November 1st, 2019 or after, are eligible for the COBRA Premium Assistance.

Anyone who became eligible for COBRA prior November 1st, 2019 would reach the end of their 18 month COBRA eligibility period as of April 1st, 2021, which is when the premium assistance period starts, and therefore would not be eligible for the program.

When can COBRA Premium Assistance be terminated?

Employers can terminate Premium Assistance on or after the earlier of:

  • The first date the individual is eligible for coverage under Medicare
  • The first date the individual is eligible for coverage under any other group health plan (for example the employee gets another job and enrolls in the health insurance plan offered by the new employer)
  • The date following the expiration of the normal maximum COBRA period, which generally would be 18 months from the qualifying event date (either date of termination or reduction in hours), but prior to September 30th, 2021

How will employers recoup the outlay of money spent on paying COBRA premiums under the COBRA Premium Assistance Plan?

For employers who maintain group health plans for their employees, the premium assistance is paid by the employer who is required to pay COBRA premiums for eligible, terminated employees.

Employers can treat the subsidy as a credit against the employer’s share of Medicare tax under Internal Revenue Code Section 3111 (b). If the credit exceeds the Medicare tax owed for a fiscal quarter, the excess will be refunded to the employer by the Internal Revenue Service (IRS).

EMPLOYER NEXT STEPS

What steps should employers follow to properly administer the COBRA Premium Assistance Plan?

Step 1
First, go back and review payroll records to identify all employee terminations or any reductions in hours worked that occurred on, or after November 1st, 2019.

Step 2
Next, identify which of those terminations were voluntary (the employee quit) and which were involuntary (the decision was the employer’s decision).

Note that at the time of this writing, the Department of Labor has not yet issued guidance to clarify if a reduction in hours must be voluntary, or involuntary in order to be eligible for the COBRA Premium Assistance plan.

Step 3
Prepare a list of involuntary terminations and any reduction in hours that resulted in an employee losing eligibility for the group health coverage offered by the employer.

Step 4
Next, of those involuntary terminations or employees who had a reduction in hours occurring between November 1st, 2019 to present, identify which employees were enrolled in the employer- sponsored health coverage at the time of termination.

Step 5
Of the employees identified in Step 4, review/determine the COBRA status of each.

Step 6
If COBRA administration is out-sourced to a third-party administrator (TPA) such as BASIC, Health Equity, Infinisource, etc. – simply notify the TPA of those eligible employees and the TPA will take care of all required notices and administration.

Step 7
Employers who don’t outsource their COBRA administration will have a lot more work to do as the burden of notifying employees of their election rights under the COBRA Premium Assistance Plan falls directly to the employer.

FORMS & INFORMATION PACKAGE

To assist employers with navigating the various compliance issues associated with the COBRA Premium Assistance Plan, our ERISA legal team has prepared a “Forms & Information Package” compliments of Employer Benefits & Advice.

Prepared by our ERISA legal team, the Forms & Information package provides all of the legal documents & notices for companies to properly comply with this new law.

Included are:

a. Explanation of New COBRA Premium Assistance for Employers & Employees

b. How “Gross Misconduct” is Defined Under COBRA

c. EMPLOYEE NOTICES & FORMS
(to be provided by employer or COBRA Administrator)

  • Notice of Availability of Premium Assistance for COBRA Participants
  • Special Enrollment Election Notice
  • COBRA Premium Assistance Special Enrollment Election Form
  • Notice of Expiration of the COBRA Premium Assistance
  • New Periods to make Elections for Benefits or Coverage

d. EMPLOYER NOTICE
(provided by employee if he/she ceases to be eligible for COBRA Premium Assistance)

  • Notice of Eligibility for Other Group Insurance Coverage or Medicare Form
Should additional guidance issued by the Department of Labor (DOL) and the IRS alter or add to any of the information outlined above, we will notify readers accordingly.

ADDITIONAL EMPLOYER RESOURCES

Click the button below to access your complimentary copies of

1. COBRA Premium Assistance Plan Forms & Information Package; and/or
2. A list of termination & eligibility examples to assist HR professionals

Additional Employer Resources