ARPA and COBRA: Everything Old is New Again

As Sherman said to Mr. Peabody, “To the Wayback Machine!” [Note: sorry, I grew up on Saturday morning cartoons. You’ll want to Google the Wayback Machine].

Remember 2009? The American Recovery and Reinvestment Act (ARRA) provided subsidies to eligible COBRA qualified beneficiaries (QBs) to assist with the cost of continuing lost group health coverage. A new name was provided to this group of COBRA-subsidized QBs: Assistance Eligible Individuals (AEIs). Well (continuing our pop culture trip through memory lane), “they’re baaaacccck.”

On March 11, 2021 President Biden signed the American Rescue Plan Act (ARPA). It contains many HR and benefit-related items, and in this post we’ll cover the new temporary rules for this year’s version of AEI’s.

Normally—and in relation to COBRA that hasn’t been the case since March 1, 2020—COBRA QBs are generally entitled to 18 or 36 months of continuation coverage based upon what type of qualifying event occurred. Last year, and continuing now, DOL has “paused” any number of timelines relating to COBRA elections, initial payments, and payment grace periods. We’ve written extensively about these suspensions of COBRA deadlines here and here.

Under ARPA, AEIs will be eligible for 100% premium subsidized coverage for up to six months for the period from April 1, 2021 through September 30, 2021. ARPA imposes new notice requirements as well as a Special Enrollment Period (SEP) so that AEIs can make certain elections.

Who’s an Assistance Eligible Individual (AEI)?

Not all COBRA QBs are AEIs. Only employees who lost their group health coverage due to involuntary termination (think layoff, furloughs, and job-eliminated individuals, but not for gross misconduct) as well as those who had a reduction in hours are AEIs. Their COBRA qualifying event must have occurred less than 18 months before April 1, 2021, since under ARPA the entire period of COBRA coverage does not exceed 18 months. [Note: none of the extended “paused” deadlines impact the actual length of the COBRA coverage period]. Lastly, to qualify as an AEI eligible for the COBRA 100% subsidy, the affected individual must have already been enrolled in COBRA coverage on April 1, 2021, or must enroll during the Special Enrollment Period described below.

Which Plans are Subject to the New ARPA Rules?

Good question. We don’t know. [Update: On April 7, 2021, DOL guidance gives us a better idea].

Certainly group health plans are included, but absent guidance from the IRS and DOL, we don’t yet know if  plans such as dental, vision, and certain Employee Assistance Plans are covered under the ARPA rules, whether bundled with a group health plan or offered as separate options from group health. We suspect that when guidance is issued (hopefully shortly), dental and vision coverage will be included in the premium subsidy. [Update: the DOL guidance better defines plans covered, and appear to include dental, vision, certain EAPs]. We do know that certain types of plans such as health care flexible spending accounts are not covered under ARPA’s special COBRA rules.

The Subsidy: How Much and for How Long?

The subsidy under ARPA for COBRA continuation coverage is full payment of the premium amount due, including the two percent administrative charge typically imposed. That is, COBRA coverage for AEIs is free as long as they are enrolled in COBRA on April 1, 2021 or make an election to enroll during an ARPA Special Enrollment Period. 

The period of the COBRA premium subsidy for an AEI starts on the later of April 1, 2021 or the date of a subsequent involuntary termination or reduction of hours that occurs prior to September 30, 2021, and runs until the earliest of the following events:

1. 18 months from the date of the COBRA qualifying event; or
2. The date the AEI becomes Medicare-eligible (not necessarily enrolled in Medicare coverage) if Medicare eligibility occurs after the date of the COBRA qualifying event; or
3. The date the AEI becomes eligible for (again, not enrolled in) other group health coverage, including via a new employer’s plan or another family member’s employer, such as a spouse’s employer; or
4. September 30, 2021.

Incidentally, the COBRA premium subsidy is not taxable to the employee (and similarly, not taxable to the employer for payroll tax purposes). [Update: Note too that AEIs in states with their own mini-COBRA laws are also eligible for the ARPA premium subsidy].

The Special Enrollment Period (SEP)

If an AEI is not already enrolled in COBRA coverage prior to April 1, 2021, he or she gets a “second bite at the apple.” Specifically, AEIs who never elected COBRA when it was first offered (including through the “paused” deadlines), as well as those AEIs who did elect and start COBRA but later dropped it with some of the 18 month coverage window remaining get a chance to re-elect COBRA with the new premium subsidy. And they can make one of two elections:

1. For those AEIs who never elected COBRA, they can elect coverage back to the date of their COBRA qualifying event as long as none of the four events listed in the section above have occurred. For those AEIs who did elect COBRA coverage initially but dropped that coverage prior to April 1, 2021 (but with some of their 18 months still remaining), as long as they didn’t have any of the four events listed above, they can elect COBRA coverage back to the date they dropped COBRA. Of course, in both cases the AEIs would have to go back and pay any missed COBRA premiums to bring their paid-in-full status up through March 31, 2021 in order to receive the premium subsidy that begins on April 1, 2021.
2. For both those who never elected COBRA and those who dropped COBRA, they can elect not to go back and pick up where they left off, but rather to start COBRA coverage during this Special Enrollment Period on April 1, 2021 (and thus their ability to submit claims incurred on or after that date) for whatever remains of their 18 month’s of COBRA eligibility.

The SEP window is open for 60 days from the date the AEI receives a new notice of their ARPA options. Yes, the law says 60 days from the date of notice receipt. We think this may get changed when we get further guidance from the DOL to 60 days from the date of mailing, much like all other COBRA notices. But who knows?

But wait, there’s more. An employer can optionally offer AEIs the ability to elect a lower-cost group health plan that the employer offers to active employees. We’ll get into required notices shortly, but an AEI would have 90 days after they receive a special notice to make such an election for a plan that is different than the one she was in prior to her loss of coverage due to an involuntary termination or reduction of hours.

[Update: For those states with mini-COBRA laws, each state will have to determine if they will recognize any of ARPA’s Special Enrollment Periods. ARPA’s definition of SEPs generally will not control a state’s mini-COBRA].

The ARPA Required Notices

We know that many employers (or their COBRA administrators) just sent out required notices of the “paused” COBRA deadlines, but that doesn’t mean it’s not time to send out yet another set of notices. Perhaps this is the way the USPS will stay in business. But in any event, the DOL is required to produce a model notice for informing AEIs of their option to receive their full COBRA premium subsidy as well as their Special Enrollment Period rights. And another model notice for those employers who choose to allow a lower-cost plan option to these AEIs that is currently offered to active employees. [Update: Those model notices are available here].

And, as we said above, “but wait, there’s more.” No fewer than 15 days and no more than 45 days before the end of the subsidy period, yet another notice must be provided to an AEI who has accepted COBRA and the premium subsidy to inform them that their subsidy is coming to an end. But that’s not required if the subsidy is ending due to eligibility for another group health plan (e.g. new job or spouse obtaining eligibility for a group health plan). And if the end of the 18 month window occurs after September 30, 2021, yet another of the regular COBRA notices informing QBs that they are approaching the end of COBRA coverage must also be sent.

And you said you wanted to self-administer your COBRA obligations.

How Does an Employer Recoup the COBRA Premium Subsidy?

Initially, the original bill that eventually became ARPA had multiple mechanisms depending upon how the group health plan was funded. Self-funded plans had the employer providing the subsidy and subsequently claiming the credit, while fully insured plans had the insurance carrier advancing the subsidy and then reclaiming it from the federal government. Some commentators even wrote articles using that mechanism.

But that’s not what was in the final bill signed into law.

Regardless of how the group health plan is funded (fully insured or self-funded or any combination thereof), the employer claims the total cost of the COBRA premium subsidy by taking a credit against Medicare (HI) taxes on their quarterly IRS Form 941. If the premium subsidy is greater than the Medicare taxes withheld and due on the 941, then the employer can apply for a refund for the remaining difference. Employers may also apply for an advance from the federal government for the amounts of the premium subsidies (although the mechanism for this has not yet been determined).

Employer Actions to Take Now

1. Identify all COBRA QBs who will qualify as AEIs. That means separating out voluntary terminations from involuntary terminations, Be sure to add back all who had a reduction in hours that caused the loss of group health coverage.
2. Determine which plan(s) are subject to the new ARPA rules.
3. Update all records of AEIs to determine amount of COBRA eligibility remaining and individual costs to reinstate a COBRA election that was not made or dropped before April 1, 2021 to “catch up” past missed contributions. But remember the COBRA “pause” deadlines when doing so.
4. Once the DOL Model Notice is published, determine if it meets your needs and send it out (with a record of mailing) to all AEIs. Start the 60 day “second bite at the apple” clock.
5. Work with your payroll system or vendor to determine how to track and later credit all COBRA premium subsidies so that you can receive a credit against your Medicare payroll taxes.

If Kushner & Company is your COBRA administrator, we’re already working on these actions on your behalf, and will keep you posted as further guidance is provided by the DOL and IRS.