On March 11, 2021, President Biden signed into law the American Rescue Plan Act of 2021 (the “ARPA”). With nearly $2 trillion in economic relief spending, many headlines surrounding the passage of ARPA focused on individual-side benefits of the new legislation, such as its direct stimulus payments and expanded assistance for COVID-19 vaccine distribution efforts. Perhaps less eye-catching to some, but no less important, are changes included in ARPA with respect to how employers must administer and comply with the Consolidated Omnibus Budget Reconciliation Act of 1985, commonly referred to as “COBRA.” Davenport Evans Employment Lawyer Mike Snyder explains.
Prior to ARPA’s passage, COBRA allowed covered employees who lost their jobs or experienced other qualifying events to continue receiving their employer-sponsored healthcare insurance coverage for a limited time. The employer typically stopped contributing money to pay for coverage and, instead, the employee assumed responsibility for the cost of the entire premium, plus a 2% administrative fee. However, ARPA dramatically changed this landscape, along with a number of the employer’s COBRA-related responsibilities.
From the employee’s perspective, likely the biggest change is that, beginning on April 1, 2021, and continuing through September 30, 2021, covered employees will be eligible to receive a 100% subsidy for their COBRA healthcare insurance premiums. In other words, the employee’s responsibility to make COBRA payments will be suspended for up to six months. Of course, because nothing is free, the question becomes: who is responsible for those premium payments during this time?
The answer is the employer. Under ARPA, and while the subsidy is available, the employer must now cover the cost of the eligible employee’s COBRA premiums. The employer may then seek an offset from the federal government as a credit against its quarterly Medicare payroll tax.
NOTE: This subsidy is available not only to those employees who are involuntarily terminated, but also to those employees whose hours are reduced. It is not, however, available to employees who voluntarily ended their employment.
Employee Notices
Employers will need to revise their COBRA notices and provide notice to eligible employees of their rights under ARPA. In addition, employers will need to notify employees when their subsidies are set to expire, and to notify individuals if their subsidy will end prior to September 30, 2021 (unless the subsidy is ending early because the employee becomes ineligible for other reasons, such as becoming eligible for Medicare). Fortunately, ARPA requires the Department of Labor to issue model notices in the coming weeks. Initial notices must be provided no later than May 31, 2021.
Under ARPA, the premium subsidy will be available to eligible employees who are (or will be) enrolled in COBRA on or after April 1, 2021. Importantly, the subsidy is also available to employees who did not enroll in COBRA coverage or who discontinued COBRA coverage prior to April 1, 2021, but who are otherwise still within their COBRA coverage period. These individuals are eligible for a special enrollment period beginning April 1, 2021, and ending 60 days after their COBRA notice is provided.
Quick Action Needed
Given that the subsidies become available as of April 1, 2021, employers must move quickly to prepare for and to address the administrative and compliance changes to COBRA ushered in by ARPA. Employers should also compile a list of COBRA eligible employees who experienced a qualifying event in 2020 (if not earlier, depending on the employee’s continuation of coverage period) to ensure anyone who is eligible for COBRA during the subsidy period will receive notice and an opportunity to enroll in COBRA. While many employers outsource their COBRA administration to third-parties, it is still the employers who bear responsibility for compliance, and third-party administrators will need assistance from employers, particularly with respect to identifying those employees who may now be eligible for the ARPA subsidy and the special enrollment period.
Davenport, Evans, Hurwitz & Smith, LLP, located in Sioux Falls, South Dakota, is one of the State’s largest law firms. The firm’s attorneys provide business and litigation counsel to individuals and corporate clients in a variety of practice areas. For more information about Davenport Evans, visit www.dehs.com.