Under the federal health coverage continuation law, known as COBRA, a private employer with 20 or more employees that sponsors a group health plan must let individuals elect to continue their health coverage when it would otherwise end for certain reasons (such as job loss, divorce or the employee’s death). Qualified beneficiaries with COBRA continuation rights include employees, spouses and dependents who would lose coverage because of the event. Employers can charge individuals electing COBRA the full cost of coverage, plus an additional 2% to cover administrative costs. Individuals who lose employer coverage because of job loss (voluntary or involuntary) or a reduced work schedule can elect to continue COBRA coverage for up to 18 months (COBRA Continuation Period).
The American Rescue Plan Act signed by President Biden on March 12, 2021 contains relief from paying COBRA continuation coverage premiums, known as the COBRA subsidy (Subsidy), for former employees who lost healthcare coverage due to an involuntary termination of employment (except for gross misconduct) or a reduction in hours. Qualifying individuals can elect COBRA coverage and receive coverage without paying any premium. The coverage is subsidized by the federal government by allowing the employer refundable credits against its Medicare taxes. While the Subsidy is aimed at former employees who have lost health coverage due to the COVID-19 Pandemic, there is no requirement that the termination or reduction in hours be the result of the Pandemic. Identifying and communicating with former employees eligible for the Subsidy and administering it presents challenges for employers who should be taking action now to comply.
Action Needed. Any individual whether an employee or family member that has lost health coverage or will lose coverage during the period beginning April 1, 2021 and ending September 30, 2021 (Subsidy Period) are eligible for the Subsidy. The Subsidy should automatically apply to individuals receiving COBRA continuation coverage on April 1. Additionally, individuals who lost coverage prior to April 1 but did not elect COBRA coverage or elected such coverage but subsequently terminated it, who still have time on their COBRA Continuation Period within the Subsidy Period, may elect COBRA coverage with the Subsidy.
An otherwise eligible individual is not eligible for the Subsidy if he or she becomes eligible for Medicare or other group health coverage under another plan such as through a spouse or new employer’s plan. However, individual market coverage such as through Covered California does not disqualify an otherwise eligible individual.
Additionally, employers can choose to have their group health plan permit individuals eligible for the Subsidy that are enrolled in COBRA coverage to switch to a different coverage option offered under the plan. The COBRA premium for the new coverage option must be equal to or lower than the coverage the individual was enrolled in. The plan must give individuals notice of their opportunity to switch coverage options and the individual has 90 days to make such election. While the intent of this provision is to allow those already on COBRA coverage to elect a less expensive option, providing this election complicates compliance even more. Additionally, because eligible individuals do not pay premiums during the Subsidy Period, there is no premium savings for switching to lower-cost coverage, unless their COBRA Continuation Period continues after the Subsidy Period ends on September 30.
Employers must give notice of the availability of the Subsidy to all eligible individuals by May 31, 2021. However, this means employers must identify all eligible individuals, provide them notice of the availability of the Subsidy, and provide them 60 days to elect coverage. Additionally, employers must provide such individuals with a notice when the Subsidy will end due to the end of the COBRA Continuation Period or due to the end of the Subsidy Period. Such notice must be provided no sooner than 45 days before the end of the applicable period but at least 15 days before the end of such period. The Department of Labor has issued model notices that employers can use to be considered in good faith compliance.
Steps employers must take include the following:
1. If the group health plan provides more than one option of coverage, decide whether to permit individuals on COBRA continuation to switch options.
2. Review the employment records of all COBRA eligible employees that lost health coverage due to involuntary termination (other than for gross misconduct) whose COBRA continuation coverage would reach April 1, 2021. This generally goes as far back as October 1, 2019. Likewise, the same review must be done for those eligible for COBRA coverage for an involuntary reduction of hours.
3. Provide the notice of the availability of the Subsidy and opportunity to elect such coverage to all such former employees and their family members who lost coverage as a result of the employee’s loss of coverage.
4. Receive the elections to provide the coverage.
5. Provide the notice of the termination of the Subsidy or COBRA continuation coverage period.
Employers need to develop their compliance strategy now.