May 26, 2021
New guidance has been issued to clarify the Subsidized COBRA obligations imposed on employers and plan sponsors by the American Rescue Plan Act of 2021 (“ARPA”). This guidance comes at the last minute, as the deadline to send out the notices required by ARPA expires on May 31, 2021. Now is the time to double-check your compliance, as employers and plan sponsors have little time left to bring plans into compliance.
As a reminder, ARPA grants eligible individuals who lost jobs or had a reduction in hours, and their eligible family members (collectively, “Assistance Eligible Individuals” or “AEIs”), the right to continue their employer-sponsored group health plan coverage at no cost during the period from April 1, 2021 to September 30, 2021 (“ARPA Subsidized COBRA”). For more detailed explanation, please review our prior alerts discussing these new ARPA rights here:
The new guidance (Notice 2021-31) provides answers to a few (but not all) of the remaining unanswered questions:
The latest guidance is explicit that ARPA Subsidized COBRA must be offered for all types of group health plans that are subject to COBRA requirements, other than health flexible spending arrangements (health FSAs). This means that vision plans, dental plans, and employee assistance programs (“EAPs”), regardless of whether the employer pays any portion of the premiums, are also covered. Employers offering vision, dental, or EAPs should make sure that they send required notices to AEIs with respect to these non-medical plans.
AEIs include those who involuntarily terminated employment but became entitled to extended periods of COBRA coverage (29 or 36 months) due to one of the special extension rules (e.g., disability) or a second qualifying event. These AEIs are entitled to either 29 or 36 months of COBRA, but only if the original event was a reduction in hours or an involuntary termination of employment. This means that employers and COBRA administrators may need to go back farther in their records to identify AEIs (possibly as far back as April 2018).
Many employers were forced to decrease their employee count last year due to the financial strain caused by COVID-19. Prior to the issuance of the latest guidance, it was unclear if an employer who used to be subject to COBRA, but who has now dropped below the 20-employee federal COBRA threshold (and is not subject to a state mini-COBRA requirement), must still comply. The short answer is yes. An employer is subject to ARPA Subsidized COBRA based on its status at the time the employee experienced the qualifying event. Therefore, if a terminated employee has COBRA rights due to the employer being subject to COBRA at the time of the employee’s qualifying event, the employee is eligible for ARPA Subsidized COBRA even if the employer is no longer subject to COBRA.
Example: An employer is covered by COBRA for the 2020 calendar year but is an exempt small employer for the 2021 calendar year. An individual has a qualifying event that is an involuntary termination of employment in November of 2020. Because the qualified beneficiary’s qualifying event occurred during the 2020 calendar year when the employer was covered by COBRA, the employer is required to provide the individual the opportunity to elect ARPA Subsidized COBRA, using the AEI’s full federal COBRA period to determine its obligations.
ARPA Subsidized COBRA rules apply not only to federal COBRA, but also to state mini-COBRA laws. However, the new guidance clarifies that only employers subject to federal COBRA must offer AEIs a second “extended election period” (e.g., “second bite of the apple”) to enroll in ARPA Subsidized COBRA coverage. Employers subject to a state’s mini-COBRA laws are not required to offer this extended election period, unless the applicable state’s mini-COBRA law itself provides for a similar extended election period. Thus, unless such a state mini-COBRA law mandates the extended election period, small employers are only required to subsidize COBRA for qualified beneficiaries who have enrolled in the mini-COBRA coverage pursuant to the normal election rules.
Even with the issuance of this latest guidance, several questions remain unanswered:
Given the fast-approaching notice deadline, we are doubtful that any further guidance will be issued to clarify these issues.
The Nelson Mullins Employee Benefits Group is ready to assist with questions or compliance steps. Please contact one of our Employee Benefits attorneys or the Nelson Mullins attorney with whom you work. For additional information on COVID-19 related issues, please visit the Nelson Mullins COVID-19 resource page.
These materials have been prepared for informational purposes only and are not legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Internet subscribers and online readers should not act upon this information without seeking professional counsel.