On April 7, 2021, the Department of Labor (DOL), in consultation with the Department of Treasury and the Internal Revenue Service (IRS), issued FAQs written for the benefit of participants and beneficiaries regarding the temporary 100% COBRA Subsidy mandated by the American Rescue Plan Act of 2021 (the ARP). On the same date, we issued an Advisor containing links to the FAQs as well and to the model notices and forms necessary to implement and administer the COBRA Subsidy. The COBRA Subsidy is required to be provided to eligible individuals who have not exhausted the maximum COBRA coverage period as of April 1, 2021, with the ARP extending to those individuals an opportunity to make a COBRA election during a special election period that begins on April 1, 2021, and ends on May 31, 2021. The duration of the COBRA Subsidy period is six months, ending on September 30, 2021. The following reflects our comments on the FAQs that we encourage plan sponsors to urgently consider in making the premium relief available.
The FAQs are written in an easy-to-read manner and simply confirm the information reflected in the ARP. The FAQs fail to address several of the subtle technical issues that plan sponsors have been addressing in complying with the COBRA Subsidy rules due to the participant focused format, but are nonetheless instructive. The following highlights the FAQs that provide some of the much-needed clarity absent from the plain language of the ARP.
Previously Declined COBRA Coverage
FAQ 1, in part, provides guidance on the whether individuals who previously declined COBRA continuation coverage when first eligible are eligible to again elect COBRA during the 60-day election period beginning April 1, 2021. The FAQ confirms that if an individual was previously offered COBRA as a result of a reduction in hours or an involuntary termination of employment, and the individual declined to take COBRA continuation coverage at that time, the individual may have another opportunity to elect COBRA coverage during the special enrollment period and to receive the premium assistance. As a condition of eligibility, the maximum COBRA coverage period must not have expired with respect to the individual.
New Election of COBRA Coverage
FAQ 5 builds upon FAQ 1 by adding clarification in defining which individuals are eligible for the COBRA Subsidy. A qualified beneficiary whose qualifying event was a reduction in hours or an involuntary termination of employment prior to April 1, 2021, and who did not elect COBRA continuation coverage when it was first offered prior to that date or who elected COBRA continuation coverage but is no longer enrolled (for example, an individual who dropped COBRA because he or she was unable to continue paying the premium) may have an additional COBRA election period beginning April 1, 2021. Notice of the additional COBRA election period must be provided by the plan sponsor or its delegate to eligible individuals within 60 days of the first day of the first month beginning after the date of the enactment of the ARP (by May 31, 2021).
Individuals have 60 days after the notice is provided to elect COBRA. This additional election period does not extend the period of COBRA continuation coverage beyond the original maximum period (generally 18 months from the employee’s reduction in hours or involuntary termination).
COBRA Coverage and Subsidy Retroactive to April 1, 2021
FAQ 5 confirms that COBRA coverage with premium assistance elected in the additional election period begins with the first period of coverage beginning on or after April 1, 2021. Individuals can begin their coverage prospectively from the date of their election, or, if an individual has a qualifying event on or before April 1, choose to start their coverage as of April 1, even if the individual receives an election notice and makes such election at a later date. For example, if an individual receives the notice after April 1, 2021, the COBRA coverage and subsidy is nonetheless effective April 1, 2021.
COBRA Subsidy Deadlines Unaffected by Outbreak Extensions
Due to the COVID-19 National Emergency, the DOL, the Department of the Treasury, and the IRS issued a Notice of Extension of Certain Timeframes for Employee Benefit Plans, Participants, and Beneficiaries Affected by the COVID–19 Outbreak (Joint Notice), which provides relief for certain actions related to employee benefit plans required or permitted under Title I of ERISA and the Internal Revenue Code (Code), including the 60-day initial election period for COBRA continuation coverage. The DOL’s Employee Benefits Security Administration (EBSA) provided further guidance on this relief in EBSA Disaster Relief Notice 2021-01. FAQs 5 and 10 confirm that the extended deadline relief provided in the Joint Notice and Notice 2021-01 does not apply to: (1) the 60-day notice or election periods related to COBRA premium assistance under the ARP; (2) the notice of expiration of the COBRA subsidy; or (3) any other notices required in connection with the COBRA subsidy.
Family Member Separate COBRA Elections
FAQ 16 addresses the eligibility of family members to elect COBRA during the extended enrollment period, separate from other eligible family members and provides that each COBRA qualified beneficiary may independently elect COBRA continuation coverage. Further, if a family member did not elect COBRA continuation coverage when first eligible and that individual would be eligible for the COBRA subsidy, that individual must be provided with an additional opportunity to enroll and qualify for the premium assistance.
We anticipate considerable enrollment during the new enrollment period in order for individuals to take advantage of the subsidy. Plan sponsors are encouraged to coordinate with their carriers and other service providers to ensure that all eligible individuals are provided the opportunity to make a COBRA election during the 60-day period beginning April 1, 2021. As indicated in FAQ 10, the DOL is committed to ensuring that individuals receive the benefits to which they are entitled under the ARP. Plan sponsors may also be subject to an excise tax under the Code for failing to satisfy the COBRA continuation coverage requirements, which could be as much as $100 per qualified beneficiary, but not more than $200 per family, for each day that the taxpayer is in violation of the COBRA rules. Additionally, non-compliance could result in costly civil litigation. For the foregoing reasons, immediate attention to the new rules is required.
Download this advisor to continue reading our comments on the FAQs that we encourage plan sponsors to urgently consider in making the premium relief available. The FAQs are written in an easy-to-read manner and simply confirm the information reflected in the ARP.
This information is general and was provided by United Benefit Advisors (UBA) for educational purposes only. It reflects UBA’s understanding of the available guidance as of the date