As discussed in our prior advisory, the American Rescue Plan Act of 2021 (ARP) provides assistance eligible individuals temporary premium assistance for COBRA continuation coverage and, where the employer elects to offer the option, an opportunity to switch to a different health plan option offered by the employer. The Department of Labor (DOL) recently issued Model COBRA Notices and frequently asked questions (FAQs) to assist employers and group health plans in implementing the new ARP COBRA subsidy, which extends from April 1, 2021 through September 30, 2021.
What are the new ARP COBRA notice requirements?
The ARP imposes three key notice requirements on group health plans, including:
- A general notice and election form to be provided to all qualified beneficiaries who have a qualifying event that is a reduction in hours or an involuntary termination of employment during the period April 1, 2021 through September 30, 2021. This notice may be provided separately or with the COBRA election notice following a COBRA qualifying event. While the content of this notice is mandated by statute, the employer has discretion on whether to use the DOL’s model forms or develop its own forms.
- A notice of the extended election period for use with eligible assistance individuals currently enrolled in COBRA continuation coverage due to a reduction in hours or involuntary termination, as well as individuals who would be an assistance eligible individual if the individual had elected and/or maintained COBRA continuation coverage, in each case, who had a qualifying event before April 1, 2021 (i.e., individuals whose qualifying event occurred within the preceding 18 months, or 36 months if they qualified for the extended COBRA coverage. For example, a former employee who was laid-off on June 1, 2020 who declined coverage or who is currently on COBRA but wants to switch to a different employer plan, if permitted. This notice must be provided within 60 days following April 1, 2021 (i.e., by May 31, 2021). Assistance eligible individuals have 60 days after the notice is provided to elect COBRA.1 The extended election period, however, does not extend the period of COBRA continuation coverage beyond the original maximum period (generally 18 months from the employee's reduction in hours or involuntary termination).
- A notice of the expiration of periods of premium assistance explaining that the premium assistance for the individual will expire soon, the date of the expiration, and that the individual may be eligible for coverage without any premium assistance through COBRA continuation coverage or coverage under a group health plan. This notice must be provided 15 - 45 days before the individual’s premium assistance expires.
How much time does an assistance eligible individual have to enroll in COBRA continuation coverage under the ARP?
In general, individuals who are eligible for COBRA continuation coverage have 60 days after the date that they initially receive their COBRA election notice to elect COBRA continuation coverage. Due to the COVID-19 pandemic, however, the IRS and DOL extended the time frame for electing COBRA for private-sector group health plans.
The FAQs issued by the DOL make clear that the extended COBRA election period authorized under EBSA Disaster Relief Notice 2021 does not apply to the notices or elections related to COBRA premium assistance available under the ARP. Accordingly, assistance eligible individuals must elect COBRA continuation coverage within 60 days of receipt of the relevant notice or forfeit their right to elect COBRA continuation coverage with premium assistance.
Has the DOL provided additional guidance on eligibility?
Under the ARP, individuals may receive premium assistance if they are eligible for and elect COBRA continuation coverage on account of their own or a family member’s reduction in hours or an involuntary termination from employment. The DOL’s FAQs clarify that a reduction in hours may be voluntary or involuntary, including 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.
In terms of what qualifies as an “involuntary termination,” however, additional guidance from the DOL would be helpful. For example, does an involuntary termination include a termination by the employee for good reason or an alleged constructive discharge where severance is paid by the employer to obtain a release of claims? Hopefully, the DOL will issue additional guidance clarifying these termination scenarios (similar to the guidance issued by the IRS in 2009).2 The FAQs, however, make clear that individuals who voluntarily terminate employment are not eligible for premium assistance and, with respect to an employee whose employment is terminated for gross misconduct, the employee and any dependents are not eligible for COBRA continuation coverage or the premium assistance.
Employer action items
Employers must act quickly to update their COBRA practices and notices to comply with the new premium assistance and notice requirements.
Additionally, employers must proceed to identify and provide notice to those individuals who are entitled to an extended election period. This would include individuals who previously experienced a qualifying event that may have been a reduction in hours or an involuntary termination of employment and who (i) have not reached the maximum period for COBRA continuation coverage, or (ii) did not elect COBRA continuation coverage when it was first offered (or who elected it but subsequently dropped it).
- These individuals may elect to begin their coverage prospectively from the date of their election, or, if an individual has a qualifying event on or before April 1, 2021, choose to start their coverage as of April 1st, even if the individual receives an election notice and makes such election at a later date.
- See, IRS Notice 2009-27.