COBRA Subsidy Remaining Action Item for Employers

The COBRA subsidy has been one of the most prominent provisions of the American Rescue Plan Act of 2021 (ARPA), and for many employers, the most impactful. That said, the qualifying period for assistance eligible individuals comes to an end on September 30, 2021. Many plan sponsors still have one final action item. Read on to find out how you can remain compliant. 

What is the COBRA Subsidy?

The passing of ARPA in March 2021 caused the administration to subsidize the entire cost of COBRA coverage through the end of September 2021.

Most employed individuals had some portion of their insurance covered by their employer. COBRA offered those employees who had been laid off or had hours cut—as many millions of Americans experienced during the pandemic—an option to continue their coverage. COBRA would then bear the full cost of the health insurance premium. 

Coverage under COBRA cannot exceed 102% of the cost of the plan. Temporary insurance is oftentimes much more difficult to afford especially while looking for work. The costs can reach as high as $500 per person, per month. For this reason COBRA has become an essential subsidy, which is designed to offer key assistance for struggling workers, or those in search of work. 

COBRA Subsidy 2021 Eligibility

Employees who involuntarily lost their health insurance benefits any time after November 1, 2019, were eligible for subsidized COBRA through September 30, 2021. 

There are three categories of people who were to be considered eligible:

1. Past: If an employee who was eligible for COBRA after November 1, 2019, waived their COBRA coverage immediately or prior to their eligibility period, which is typically 18 months, then they will be considered eligible.
2. Current: This includes anyone currently covered under COBRA. 
3. Future: Employees who would be eligible for COBRA before September 30, 2021.

An employee who was initially eligible for the subsidy will lose said eligibility should they:

1. Become eligible for health insurance under a new plan
2. Reach the date in which their COBRA coverage would typically expire e.g. their 18 months ends in July

Both employers and employees should be aware that the subsidy only covered the cost of the health insurance premiums. It did not cover copays, deductibles, or co-insurance, according to an article in Forbes. According to The National Law Review, the legislation "provides free COBRA coverage to Assistance Eligible Individuals for the Subsidy Period," and the subsidy itself is non-taxable for eligible individuals.

Involuntary Termination Clarifications for COBRA Subsidy

In order to clarify questions regarding employee eligibility, the IRS issued a notice referred to as Notice 2021-3 in May of 2021.  If employees did not exhaust all maximum COBRA coverage leading up to April 1, 2021, then employers were required to provide any COBRA subsidies to all eligible employees that may have been involuntarily let go, or had any sort of reduction in hours.

Employees also used those FAQ’s to determine the meaning of “involuntary termination.” According to law firm Seyfarth Shaw LLP, this included: 

• Voluntary termination for good reason "[w]here the termination was due to employer action that resulted in a material negative change in the employment relationship analogous to a constructive discharge"
• Termination while absent due to illness or disability only if the employee was expected to return to work following the illness or disability
• If the employee chose to retire rather than be terminated (and if the employee knew of this impending involuntary termination)
• Resignation due to a material change in the geographic location of employment
• Non-renewal of the employment contract if an employee was willing and able to renew the contract

Review questions 24 through 34 in the Notice (link provided above) for additional information regarding those clarifications.

Additional COBRA Subsidy Clarifications

In Notice 2021-3 The IRS also addressed several additional concerns regarding the COBRA subsidy, including:

1. Second-Chance Elections: Individuals were eligible to qualify multiple times for the subsidy had they met more than one qualifying event in the appropriate time.
2. Medicare Tax Credit Calculations: Review Q-63 through Q-81 in Notice 2021-31 to learn how to calculate and claim the refundable payroll tax credit. 
3. Employee Eligibility Self-Certification: Employers could choose to require employees to self-certify (or attest) that they were eligible for COBRA coverage through the subsidy. See Q-4 in the Notice for further information. 

How Does the COBRA Subsidy Work?

Had an employee or former employee qualified for COBRA coverage, which the subsidy made payment on, employers would then need to reimburse said payment within 60 days to that current or prior employee according to Polsinelli PC attorneys writing in The National Law Review.

Employers would qualify to be reimbursed by the government, had they complied with the notice requirements. The reimbursement came in the form of a payroll tax credit upon filing Form 941 for their quarterly taxes.

Here is a simplified step-by-step guide:

1. An Employee Becomes Eligible for COBRA: Typically as a result of termination or a reduction in hours. 
2. The Employer Notifies All Qualifying Employees About the COBRA Subsidy: This was to be done beginning April 1, 2021, within 60 days of the employee’s qualifying event. 
3. The Employee Elects COBRA Benefits: This was to happen within 63 days of becoming eligible. 
4. The Employer Pays the Carrier: This covered the cost of the healthcare premium. 
5. The Government Reimburses the Employer: This repayment arrived via a payroll tax credit, but only when the organization filed Form 941 on its quarterly taxes. 

2021 COBRA Subsidy Employee Notice Requirement

In order to receive the employer credit, employers needed to satisfy employee notice requirements regarding the subsidy.

The notices primarily included the usual COBRA details and any special provisions stated in the ARPA. They then needed to be delivered to qualifying potential participants within 60 days of their qualifying event.

Plan sponsors were to notify assistance eligible individuals no less than 15 days and no more than 45 days before the expiration of the subsidy. Because the COBRA subsidy ends for nearly all individuals on September 30, 2021, the window for sending expiration notices was between August 16 and September 15.

Notices included the following: 

1. Any needed forms necessary to establish eligibility for premium assistance.
2. All information needed to contact the plan administrator such as name, address and phone number, as well as persons with relevant information regarding the premium subsidy.
3. A description of the special 60-day election period.
4. A description of the qualified beneficiaries’ obligation to inform the plan administrator if the qualified beneficiary becomes eligible for disqualifying coverage.
5. A description, displayed in a prominent manner, of a qualified beneficiary’s right to a subsidized premium and any conditions on entitlement to the subsidized premium.
6. A description of the qualified beneficiary’s option to enroll in different coverage, if permitted by the employer.

These model notices released by the Department of Labor (DOL) were effectively used to communicate the different options to employees.

If needed, employers could partner with third-party COBRA administrators regarding COBRA subsidy notices. They helped to ensure that employee notices met all guidelines and obligations, and updated any necessary information accordingly. COBRA subsidy notice of expiration was to be sent out within 45 to 15 days of expiration. This means that the cutoff date was September 15th. This was a mandatory requirement.

Who Can Help Employers with the COBRA Subsidy?

Will The COBRA Subsidy be Extended?

The COBRA subsidy has been extended until September 30, 2021. Currently this is the final date for subsidy assistance. There has currently been no word of extension beyond this date. 

The DOL has also issued further clarifications regarding the COBRA subsidy with their release of a frequently asked questions (FAQs) section. Review the 10-page document to learn more about specific rules and regulations that may apply to your team.