Preparing for the End of ARPA COBRA Subsidies
June 21, 2021
While much focus, to date, has been on implementing the American Rescue Plan Act of 2021 (ARPA), employers and plan administrators must now turn their attention to preparing the necessary notice to some Assistance Eligible Individuals (AEIs) concerning the expiration of any subsidies they have received. To ensure compliance, plan administrators must provide a timely notice to those AEIs who wish to maintain their COBRA continuation coverage after the subsidy has ended.
The subsidy Expiration Notice must only be provided to AEIs who are eligible to continue COBRA beyond the coverage period ending September 30, 2021. Plan administrators are not required to provide the Expiration Notice to any individual who voluntarily drops COBRA coverage, enrolls in other group health plan coverage or Medicare, or whose maximum COBRA coverage period ends before September 30, 2021.
In IRS Notice 2021-31, issued on May 18, the Departments of Labor and Treasury issued guidance reiterating important information affecting the expiration of COBRA subsidies. In the Notice, the IRS specified that the subsidy ends on the earliest date of these options:
- The last coverage period beginning on or before September 30, 2021;
- The date the individual reaches the maximum COBRA continuation period; or
- The first period of coverage beginning on or after the first date the individual becomes eligible for another group health plan or Medicare.
When is the Expiration Notice due?
Plan administrators must notify AEIs at least 15 days (but no more than 45 days) before they will lose the subsidy. For most employers, this will be between August 17 and September 30, 2021. However, if the employer offers COBRA coverage that does not begin on the first of the month, the employer must determine the period applicable to the Expiration Notice by determining the end of the last period of coverage beginning on or before September 30, 2021. (See Notice 2021-31 FAQ Q/A 47 for an example)
Note: Given the possible challenges in timing of the subsidy Expiration Notice, plan administrators should consult with counsel and consider their options for good faith compliance.
Can the subsidy last beyond September 30, 2021?
The IRS clarified in Notice 2021-31 that for individuals still eligible for the premium subsidy on September 30, the subsidy will not necessarily end on that date. Instead, the subsidy continues until the end of the last “period of coverage” beginning on or before September 30. A “period of coverage” means a month or shorter period regarding premiums that would normally be charged. For example, if premiums are usually assessed on a bi-weekly period basis, including the period from September 26 to October 16, the subsidy would not be prorated to September 30th but would instead cover the entire period ending on October 16.
When is an individual eligible for the premium subsidy? Does a second qualifying event affect eligibility for the premium subsidy?
An individual is eligible for the premium subsidy if the individual has experienced a reduction in hours or an involuntary termination. Once eligible, the premium subsidy ends when an AEI is no longer eligible for COBRA continuation coverage or enrolls in other disqualifying coverage.
The IRS guidance also clarified that an AEI continues to be eligible for the subsidy if the initial COBRA qualifying event was a reduction in hours or involuntary termination and a second qualifying event occurs (e.g., disability) or an extension required under State mini-COBRA. For example, if an individual who was involuntarily terminated on April 1, 2019 is still receiving continuation coverage due to New York’s mini-COBRA extension (i.e., continuation coverage for up to 36 months), then they will be entitled to the premium subsidy from April 1, 2021 through the end of the period of coverage beginning on or before September 30, 2021, assuming they remain assistance-eligible (i.e., not eligible for other disqualifying coverage).
The death of the employee or former employee who experienced the reduction in hours or involuntary termination will not end their spouse or children’s eligibility for the COBRA subsidy.
What is considered disqualifying coverage?
The COBRA premium subsidy ends when an AEI becomes eligible (even if not enrolled) for disqualifying coverage. Disqualifying coverage includes Medicare or group health plan coverage, but does not include excepted benefits, a qualified small employer health reimbursement arrangement (QSEHRA), or a healthcare FSA. If an individual meets the eligibility requirements for disqualifying coverage but there is a waiting period before such coverage starts, the individual will continue to be eligible for the premium subsidy during the waiting period.
What does the Expiration Notice need to include?
The notice must explain in “clear and understandable language” when the AEI’s subsidy will expire by indicating the expiration date in a prominent way. Using the DOL’s model Expiration Notice, plan administrators should include information detailing other coverage options for which a special enrollment period may be available (including Medicare or group coverage through the Health Insurance Marketplace), and information on the factors the AEI should consider in choosing among coverage options. Administrators must also specify the full, unsubsidized premium amount owed should the AEI choose to keep their COBRA coverage in effect.
If you sponsor an insured health plan and the plan offers a conversion option, administrators are required by COBRA to notify qualified beneficiaries of their option to enroll in a conversion policy within 180 days before the termination of COBRA continuation coverage. It is recommended this language be built into the subsidy Expiration Notice.
How does this affect employers with multiple plans?
Employers who offer coverage to active employees and retirees may face complex determinations when considering if an individual is eligible for the subsidy. Legal counsel can help to determine if their retiree coverage may be disqualifying coverage for subsidy purposes.
With the general COBRA subsidy period ending on September 30, plan administrators should begin planning now to ensure compliance with the subsidy Expiration Notice rules while keeping track of other current COBRA notice requirements. As always, we recommend that you reach out to independent legal counsel for more specific guidance.