Among other things, the ARPA contains several provisions aimed towards assisting employers and employees. Specifically, it imposed additional obligations on employers pursuant to the Consolidated Omnibus Budget Reconciliation Act (COBRA), including the requirement to provide temporary COBRA premium assistance to eligible employees. To assist employers in understanding these new obligations, the Department of Labor recently issued guidance related to the COBRA subsidies under the ARPA and included Frequently Asked Questions (FAQs) and model notices. Below, we outline the COBRA subsidy provisions under the ARPA and provide guidance to employers for navigating the new requirements.
Assistance Eligible Employees
Under the ARPA, assistance eligible individuals are not required to pay their COBRA premiums from April 1, 2021 through September 30, 2021 (the Subsidy Period). Instead, the ARPA requires employers to provide a 100% premium subsidy – between April 1, 2021 and September 30, 2021 – for individuals who are eligible for COBRA continuation coverage during this period because of a reduction in hours or an involuntary termination of employment (the Assistance Eligible Individuals).
Notably, in addition to individuals whose work hours are reduced and those who are involuntarily terminated from employment between April 1, 2021 and September 30, 2021, the ARPA provides rights to another category of individuals – employees who, in addition to an involuntary termination or reduction in hours, declined COBRA continuation coverage or elected COBRA coverage but later discontinued it prior to April 1, 2021. Such individuals now may be eligible for the COBRA premium subsidy provided their 18-month eligibility period has not expired. In other words, the COBRA premium subsidy applies retroactively to include employees who were terminated between October 1, 2019 and April 1, 2021, have not exhausted their COBRA coverage, and declined COBRA coverage or discontinued it. Thus, the ARPA requires employers to look back and identify each person whose employment was terminated between those dates to assess whether those individuals could be Assistance Eligible Individuals.
Importantly, for this particular federal legislation seeking to mitigate the negative impacts of the pandemic, the loss of employment and healthcare coverage need not actually be related to COVID-19. That said, individuals who voluntarily terminated their employment, were terminated for “gross misconduct,” or are eligible for coverage under another health care plan, such as a spouse’s plan, a new employer’s plan, or Medicare, are not Assistance Eligible Individuals.
In addition to requiring employers to provide up to six months of fully-subsidized COBRA premiums, the ARPA imposes two new notice requirements on employers. First, employers are required to provide a general notice to all Assistance Eligible Individuals, along with a COBRA election form, that describes the employee’s right to the subsidy. Second, employers must provide employees with a notice of expiration of the subsidy, explaining that the premium assistance for the individual will expire soon. The expiration notice must be provided to employees 15-45 days before the individual’s premium assistance expires.
The notices must additionally include:
Employers will satisfy the notice requirement by following the format of the model notices published on the Department of Labor’s website.
Unless specifically modified under the ARPA, the existing requirements for the manner and timing of COBRA notices remain in effect. This includes the guidance issued by the Department of Labor, the Department of Treasury and the IRS in light of the COVID-19 pandemic, which extended timeframes for certain actions related to health coverage under private-sector employment-based group health plans.
An employer or plan to whom COBRA premiums are payable is eligible for a refundable tax credit in the amount of the premium assistance. While further guidance is expected from the IRS explaining the process by which employers can claim the tax credit, it appears that the IRS plans to revise the employer quarterly federal tax return form, or Form 941, as well as Form 7200, which allows employers to request an advance payment of employer credits due to COVID-19.
Next Steps for Employers
While employers await further guidance from the IRS regarding the process for receiving tax credits, they should review their current COBRA notices to ensure they comply with the Department of Labor’s model notices and revise them accordingly. In addition, employers should identify Assistance Eligible Individuals terminated prior to April 1, 2021, and inform them that they may be eligible for the COBRA premium subsidy provided their 18-month eligibility period has not yet expired. Finally, employers who intend to offer or are negotiating a severance or settlement agreement for any employee terminated between April 1, 2021 and September 30, 2021, should consider seeking legal counsel before offering payment for COBRA benefits as purported consideration for the agreement. Given the ARPA, employer-paid COBRA premiums may not constitute sufficient consideration for the agreement because the payment of those premiums may not be over and above a benefit to which the employee would otherwise be entitled.
The Coronavirus Task Force at Klehr Harrison stands ready to assist you in your business and legal needs. We will continue to provide additional information and guidance as the COVID-19 situation develops.