This page provides important information about the COBRA and State Continuation subsidy under the American Rescue Plan Act. Please take the time to review the information below because this new law most likely does apply to your group health plan and creates certain notice/compliance requirements that may require action on your part.
This article is intended to provide you with general information about the COBRA subsidy and to share resources with you that should answer some of your questions. It is not intended to provide legal advice.
Here are a few Q&As about the new subsidy:
Which employers are impacted by the new subsidy?
Any employer that is required to offer COBRA and/or state continuation is subject to the new rule and will need to identify and notify qualified beneficiaries about their potential eligibility for the subsidy.
COBRA
Companies with 20 or more employees are generally subject to the federal COBRA law. All employees count—full-time, part-time, benefits-eligible, and ineligible. Employers that had 20 or more employees on greater than 50% of the typical working days in the preceding calendar year are subject to COBRA. You must consider the employee count of all commonly-owned businesses per ERISA. COBRA allows qualified beneficiaries (employees and covered dependents) to continue their group health coverage (including medical, dental, and vision insurance) for up to 18 months. Dependents who lose their coverage due to divorce, legal separation, the employee’s Medicare eligibility, or a child aging off the plan are eligible for 36 months.
State Continuation
Fully insured employers with fewer than 20 employees are not subject to COBRA but are subject to the state continuation law. Different states have different state continuation periods, and the amount of time employees will be able to continue their coverage depends on where they are located. In Texas, state continuation lasts for up to nine months for employees and dependents who have been on the group health plan for at least three months prior to losing their health coverage. Dependents who have been on the plan for a full year qualify for up to 36 months of continuation in the event of divorce, legal separation, or the retirement or death of the employee. Dental and vision benefits cannot be continued under state continuation.
Who is eligible for the subsidy?
Certain individuals who are eligible for COBRA continuation coverage due to a qualifying event that is a reduction in hours or an involuntary termination of employment may be eligible for a 100% premium subsidy for up to six months. Those who quit employment or who were terminated for gross misconduct are not eligible.
Individuals who are or become eligible for Medicare or other group health coverage—through a new employer or their spouse’s employer—are not eligible for the premium subsidy. Individuals receiving a subsidy who later become eligible for Medicare or other group coverage must advise the employer and then pay the full premium if they would like to continue COBRA after that point.
How long does the subsidy last?
The premium subsidy is available for up to six months, beginning April 1, 2021 and ending September 30, 2021. The subsidy can end before September 30, 2021 if COBRA or state continuation expires before then because the availability of the subsidy does NOT extend COBRA beyond the original maximum coverage period.
What are the notice requirements?
Even if an employee previously declined COBRA or state continuation, he or she may be eligible to enroll and receive a subsidy, and the employer must send the employee a notice if the former employee is still within the time period he or she could have been covered by COBRA (usually 18 months). This dates back to November 1, 2019 to determine possible ex-employees that require a notice. For state continuation groups, those who lost coverage on or after August 1, 2019 could be eligible and should receive a notice.
The employee notice must be sent by either the employer or the COBRA administration service (if you use a third-party administrator) to potentially eligible individuals prior to May 31, 2021. The eligible individual would then have 60 days from receipt of the notice to elect to receive the subsidy. COBRA coverage and premium assistance elected during this extended period begins April 1, 2021—even when elected afterward.
The Department of Labor has created several model notices, which you can access through this link: https://www.dol.gov/agencies/ebsa/laws-and-regulations/laws/cobra/premium-subsidy. The initial notice that should be sent to potentially subsidy-eligible individuals is the Model Notice in Connection with Extended Election Period, which is available as a Word document on the DOL website.
Who pays for the subsidy?
For COBRA groups, the employer pays the COBRA premium for eligible employees, former employees, and family members and then takes a payroll tax credit to recoup the cost of these COBRA premiums plus the 2% administrative fee. For state continuation groups, the insurer will cover the cost and await reimbursement from the federal government.
Where can I get more information (and assistance)?
Again, as insurance agents, JME provides advice related to your health insurance plan but is unable to provide guidance related to COBRA. Your CPA and/or legal counsel should be able to provide specific guidance. If you wish to have help with the notices, we recommend that clients work with a third-party administrator (TPA) to ensure that they are compliant. Some of our group clients already use their carrier or an outside TPA for COBRA service. We would recommend ABY Benefits if you do not already have a TPA. They can assist you at minimal cost to provide notices, etc. that are required to avoid penalties under ERISA/DOL rules. Click here to download a flyer from ABY Benefits with some bullet points about the COBRA/Continuation subsidy and their services/rates.
It would also be helpful to review this eight-page document from the Centers for Medicare and Medicaid Services that contains some helpful information about the COBRA subsidy. Please take a moment to review the information, which goes into more detail than what we have provided.
For a sample of the premium assistance notice and the information the employee would need to complete to elect the subsidy, click here.
Finally, the Department of Labor has prepared a ten-page Frequently Asked Questions document that you’ll want to review: https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/faqs/cobra-premium-assistance-under-arp.pdf
Thank you for taking the time to review this important information. We’ll pass on any additional information that we feel is important as it becomes available. We have created a page on our website www.JMEinsurance.com for your easy reference in the future.
As always, thank you for your business. Please let us know if we can be of assistance.