The federal government would subsidize 85 percent of COBRA insurance premiums for employees who lost their jobs because of the pandemic, and their covered relatives, through Sept. 30, 2021, allowing them to stay on their company-sponsored health plan, under the stimulus measure that Congress is considering.
Employers will obtain the subsidy, to be passed along to COBRA enrollees, through a payroll tax credit against employers' quarterly taxes, explained Kathryn Bakich, national health compliance practice leader at Segal, an HR and employee benefits consultancy in Washington, D.C. "If the credit exceeds the amount of payroll taxes due, the credit would be refundable when employers submit Form 941," their quarterly tax return, she said. The credit could also be advanced under rules that would be set by the Treasury Department.
The U.S. House of Representatives passed the American Rescue Plan stimulus measure on Feb. 26, and the U.S. Senate is expected to vote on it shortly. The plan for COBRA subsidies is included in the measure.
Six-Month Subsidy
According to the House-passed text of the American Rescue Plan, the federal government's subsidy for COBRA coverage premiums that ex-employees would otherwise be required to pay would:
- Begin on the first day of the month following the legislation's enactment, presumably April 1, 2021.
- End on Sept. 30, 2021.
The relief is not available for employees who voluntarily end employment.
For eligible COBRA enrollees, the subsidy would last for six months at most, according to an analysis by Segal, and "would end earlier if the individual's maximum period of COBRA coverage (generally, 18 months) ends earlier than September 2021. It would also end earlier if the individual becomes eligible for coverage under another group health plan or Medicare. Individuals would be required to notify their group health plan if they become eligible for such coverage and would be subject to penalty if they fail to do so."
Options for Employees
Under the bill, employers could also give laid-off employees up to 90 days (following COBRA-notice receipt) to elect to enroll in a different group health plan offered by their employer. The premium for the alternative coverage choice cannot be higher than the premium for the plan in which the employee had been enrolled, among other restrictions.
Former employees "could compare whether the 15 percent [of the plan premium] they'd pay for a COBRA plan is a better deal than what they'd pay in the marketplace," Karen Pollitz, a senior fellow with the nonprofit Kaiser Family Foundation, told CNBC.
For affected employees or covered relatives, "this could be a huge relief, and not just financially," said Kim Buckey, vice president of client services at DirectPath, a benefits education, enrollment and health care transparency firm. "It means they won't have the burden of finding—and learning the ins and outs of—a new plan, potentially finding a new provider, or risk going without coverage at all while they're trying to find new employment during the pandemic. If the employer chooses to allow COBRA beneficiaries to change plan options when they elect COBRA coverage, that could provide additional financial relief."
COBRA Premiums Employers may require terminated workers who choose to continue coverage under the employer-sponsored health plan for up to 18 months to pay for COBRA coverage, with premiums limited to the full cost of the coverage plus a 2 percent administration charge. That cost, however, is not affordable for many newly unemployed workers. During the pandemic, some employers
chose to pay COBRA coverage for employees who were laid off or who lost group health plan coverage when they were furloughed or had their hours reduced. |
Enrollment Period
Under the American Rescue Plan, a fired worker who's eligible for assistance and who hasn't elected COBRA coverage by the start of the month after the law's enactment, or who elected COBRA coverage but then discontinued it, may elect COBRA coverage starting April 1 and ending 60 days after the date on which the COBRA notification was delivered.
Notice Requirements
The American Rescue Plan would require employers to amend COBRA notice forms by including as a separate document information including:
- The forms necessary for establishing eligibility for COBRA premium assistance.
- The name, address and telephone number necessary to contact the plan administrator and any other person maintaining relevant information in connection with premium assistance.
- A description of the extended election period provided by the legislation.
- A description of the option to enroll in different coverage, if adopted by the employer.
The federal government would be required to issue model notices within 30 days of enactment. Plans would also be required to notify individuals if their subsidy will end before Sept. 30, 2021, although this notice would not be required if their subsidy is ending due to the individual's eligibility for other coverage.
"Employers need to prepare now to send out notices and inform individuals about the subsidy, and they will have to send out a notice when the subsidy terminates," Bakich said.
In addition to providing the required notices, plan sponsors of group health plans should also consider whether they will permit individuals to enroll in a different—but not more expensive—plan option than the one in which they were enrolled when coverage was lost, Bakich said. "Plan sponsors would have the option to permit this and would need to include the availability of that option in the notices they send out," she noted.
Compliance Issues
"Employers should be aware of the administrative issues related to notifying individuals that may have had a COBRA event [i.e., loss of employment] in the last year, and become aware of how to address situations where the employer may have subsidized a portion of the COBRA premium," Bakich said.
In anticipation of the measure's enactment and the subsidy's April 1 effective date, employers should start "working hard to gather the names of COBRA qualified beneficiaries who had a qualifying event in 2020 so they can make sure that anybody who is eligible for COBRA during the six-month subsidy period gets a notice and ability to elect COBRA," Bakich said. Generally, this would include "anyone who had—or could have had—COBRA as far back as November 2019, because their 18 months of coverage would extend through April 2021," she pointed out.
Buckey noted that "most employers today outsource COBRA administration, so it would fall on the administrator to manage election changes, notice requirements and billing." The model COBRA notices expected shortly after passage of the bill "should ease the burden of revising current notices," she said, and "since most plans are silent on election changes for COBRA, it's unlikely that any plan amendment would be required to adopt the plan option change provision."
Added Buckey, "It's worth noting [that] the penalty for COBRA beneficiaries who fail to notify the plan when they become eligible for other group coverage is $250, and in the case of intentional failure to notify, the greater of $250 or 110 percent of premium assistance provided after loss of eligibility"—a matter about which employers should inform COBRA enrollees.
Effect of COBRA Deadline Extension While employers are watching legislative developments regarding COBRA, they should stay aware of new regulatory guidance affecting COBRA deadlines for plan administrators and terminated employees. "The
new extended delay guidance from the Department of Labor in Notice 2021-01 complicates administration of the COBRA subsidy in that individuals are allowed an extension of time to elect COBRA," Bakich said. "But since employers have to send a new notice anyway, it does not appear to be particularly concerning. Those individuals who are eligible for delays will also be covered by the COBRA subsidy." |
Related SHRM Articles:
Agencies Revise—and Complicate—COBRA Deadline Extensions, SHRM Online, March 2021
House Passes $1.9 Trillion COVID-19 Economic Relief Bill, SHRM Online, March 2021
Biden Proposes Temporary Subsidies for COBRA Coverage, SHRM Online, January 2021