Broker Check

2021 COBRA Subsidy Guidance

Lauren C. Stuart

Executive Vice President

The American Rescue Plan Act of 2021 (ARP) included provisions to assist individuals that lost employment involuntarily or had a reduction in hours.  Assistance Eligible Individuals may qualify for 100% paid insurance coverage during the period of April 1, 2021 through September 30, 2021 if they are still within their continuation coverage period (typically 18 months). 

As employers, you are being tasked with certain responsibilities to track and notify individuals that may qualify for insurance premium assistance under the ARP.  This is a time sensitive matter and tax penalties apply for a failure to comply.

It is common for legislation to be passed and then guidance from government agencies to follow.  On April 7, 2021, the Department of Labor (DOL) issued FAQs to assist in administering this recently passed legislation.

FAQS ABOUT COBRA PREMIUM ASSISTANCE UNDER THE AMERICAN RESCUE PLAN ACT OF 2021 (dol.gov)

This article will provide a brief overview for employers required to offer COBRA, employers required to offer PA State Continuation coverage (PA Mini-COBRA), and employers that are transitioning from COBRA to PA Mini-COBRA due to changes in staffing. 

What individuals may qualify as Assistance Eligible Individuals (AEI)?

According to the DOL Q3: “An individual that is eligible for COBRA continuation coverage by reason of a qualifying event that is a reduction in hours (such as reduced hours due to change in a business’s hours of operations, a change from full-time to part-time status, taking of a temporary leave of absence, or an individual’s participation in a lawful labor strike, as long as the individual remains an employee at the time that hours are reduced) or an involuntary termination of employment (not including a voluntary termination).”

Does everyone qualify for the subsidy?

While an employer may identify an individual as meeting the parameters of an AEI, the 100% subsidy is only available to those AEIs that are not eligible for coverage under another group plan including a spouse’s employer, or Medicare. Tax penalties apply to individuals that fraudulently apply for the subsidy. In addition, the maximum COBRA continuation coverage period is not extended. 

Federal COBRA Eligible Employers

Step 1: Employers need to identify any individuals that may have had a reduction in hours or separation in service from November 1, 2019 until September 30, 2021.  Third party COBRA service providers are actively collecting this information now.

Step 2: Notices must be provided to any potential AEI no later than May 31, 2021 and individuals have 60 days after the notice to elect COBRA.  Model notices are now available on the DOL website. https://www.dol.gov/agencies/ebsa/laws-and-regulations/laws/cobra/premium-subsidy

It is important to highlight a ‘Second Chance’ for potential enrollees.  According to the DOL Q5: “A qualified beneficiary whose qualifying event was a reduction in hours or an involuntary termination of employment prior to April 1, 2021 and who did not elect COBRA continuation coverage when it was first offered prior to that date or who elected COBRA continuation coverage but is no longer enrolled (for example, an individual who dropped COBRA continuation coverage because he or she was unable to continue paying the premium) may have an additional election opportunity at this time.”

Step 3: For any AEI that elects COBRA, benefits are re-instated and a tax credit is provided to the employer to offset premiums.

PA Mini-COBRA Eligible Employers

Step 1: Identify any individual currently enrolled in PA Mini-COBRA that would also qualify as an AEI and monitor any separation in service or reduction in hours until September 30, 2021.  PA state continuation coverage lasts for a maximum of 9 months and only applies to medical insurance.

Unlike Federal COBRA AEIs, PA Mini-COBRA AEIs do not have a ‘Second Chance’ to enroll.  So, an AEI that did not elect PA Mini-COBRA and is outside his/her election window may not qualify for reinstatement or the premium subsidy.

Step 2: Notices must be sent to any potential AEI no later than May 31, 2021 and individuals have 60 days after the notice to elect COBRA.  The DOL has provided an Alternative Model Notice for employers offering state continuation.

Step 3: For any AEI that elects PA Mini-COBRA, the premium cost is reimbursed directly to the insurance carrier from the federal government.  The mechanics of this process are still evolving. 

Employers transitioning from COBRA to PA Mini-COBRA

The Qualifying Event Date for an AEI will determine the reinstatement and subsidy rules that apply.  The Qualifying Event Date is the date an employee’s hours were reduced or employment was terminated.   If an employer was offering Federal COBRA at the time of the Qualifying Event, an employer should follow the rules for Federal COBRA eligible employers for that specific instance.

If another AEI was offered PA Mini-COBRA at the time of his/her Qualifying Event, an employer should follow the rules for PA Mini-COBRA eligible employers for that situation.

So, employers in the situation of moving from Federal COBRA to PA Mini-COBRA will need to carefully evaluate each circumstance before sending notices. 

Other Points of Interest

The legislation also provides the opportunity for COBRA individuals to change insurance plans within certain parameters.

Notices of expiration of COBRA subsidy will also be required to notify individuals when their subsidy will end.

Tycor is working diligently to reach out to our insurance clients to review the impact to their program. In addition, for those that are using Tycor’s COBRA vendor, we are working closely to make sure notices go to impacted individuals.

Please do not hesitate to contact us with questions.  Our office will continue to share information as it becomes available.  This communication is general information and should not be considered tax or legal advice.

The Tycor Employee Benefit Team