American Rescue Plan Act changes to COBRA

On March 11, 2021, President Biden signed into law the $1.9 trillion COVID-19 subsidy relief bill, the American Rescue Plan Act (ARPA). Besides the $1,400 Recovery Rebate checks to qualifying individuals, $300/week in supplemental unemployment benefits through Sept. 6, 2021, and billions in new or additional relief for among other things, school reopenings, to state and local governments and to support shuttered venues and restaurants, the ARPA made significant changes to the Consolidated Omnibus Budget Reconciliation Act (COBRA) and will require employers to issue new and revised COBRA election notices to employees who lost their health insurance since Nov. 1, 2019, because of an involuntary termination or an involuntary reduction in hours. The U.S. Department of Labor (DOL) is tasked with creating model notices for employment no later than May 10, 2020.

What changed?

COBRA gives employees and their dependents who lost their health insurance the opportunity to continue their coverage at their own expense for a period of 18 months (and can be extended to 36 months in limited situations). This continued coverage prevents a lapse in health insurance, but it often comes at a high cost to employees who become responsible for up to 102% of the cost of the premiums. Some employees elect to continue their coverage while others do not, either going without insurance or seeking insurance through the marketplace under the Affordable Care Act. During the pandemic, many employees lost their employer-provided health insurance when they lost their positions or their hours were cut back. Given this, the ARPA is providing up to six months of relief. This will apply to both federal (for employers with over 20 employees) and state mini-COBRA programs (for employers with less than 20 employees).

If employees or their dependents lost their health insurance due to an involuntary termination or because of an involuntary reduction in hours, the ARPA will provide them with a 100% COBRA subsidy from April 1, 2021 to Sept. 30, 2021. If they elect continuation coverage in this time period, they will pay nothing for their insurance. This subsidy is not available if the employee is eligible for other group health coverage or Medicare. Employers will be required to pay the full premium, but they can recover the costs from the federal government by claiming a tax credit against their quarterly Medicare payroll tax liability.

New notice requirement

When employees or their dependents lose health insurance, employers are obligated to provide COBRA notice informing them of the opportunity to continue their coverage at their own expense. Under the ARPA, employers will need to update or supplement their existing COBRA election notices to include information about the subsidy. They also will be required to provide another notice to employees between 15 and 45 days before the expiration of the subsidy. The DOL will be providing model notices for employers to use.

Special election coverage

The ARPA also increased COBRA eligibility. If employees or their dependents lost health insurance on or after Nov. 1, 2019, and before April 1, 2021, but did not elect continuation coverage or let their continuation coverage lapse and still is within their maximum COBRA coverage period, the ARPA offers them a “second chance” to elect continued coverage. This special election period will not extend the maximum coverage period measured from the original qualifying event date and will be only prospective from April 1, 2021. Employees or dependents in this situation may have a lapse in coverage, but, if eligible, will be able to participate in the subsidy through Sept. 30, 2021.

More notice requirements

Employers will be obligated to review their records to identify those employees and dependents who lost health insurance coverage on or after Nov. 1, 2019, due to an involuntary termination or reduction in hours. Employers then will need to send these employees notice of their new right to participate in the subsidy. This notice will need to be sent within 60 days and the eligible individuals will have 60 days after receipt of the notice to elect COBRA.

Employers can offer a less expensive group plan

Under regular COBRA, employees and their dependents can only elect the group coverage they had at the time of the qualifying event. Under the ARPA, employers may give their employees the option of electing a less expensive group plan. If employers determine to make this available, it will need to be included in the notices.

This is mandatory!

Significantly, the requirements to offer the subsidy and to provide notices are not optional for employers with group health plans.

The ARPA offers relief to employees who lost health insurance due to an involuntary termination or reduction in hours, but also tasks employers with new and additional administrative obligations. If you have questions about the subsidy and the new notice requirements, contact one of Chuhak & Tecson's Employment attorneys.

Client Alert authored by Jeralyn H. Baran (312 855 4613), Principal and leader of Chuhak & Tecson’s Employment practice.

This Chuhak & Tecson, P.C. communication is intended only to provide information regarding developments in the law and information of general interest. It is not intended to constitute advice regarding legal problems and should not be relied upon as such.