Guest Writer: Tony Haberman, President, The Haberman Group, tony@thehabermangroup.com | Ph: (631) 499-1180
Recently the Federal Government made two new announcements in regards to COBRA deadlines and premium payments. These announcements will affect former employees’ deadlines to elect and/or pay for their COBRA; and will even cover their COBRA premium at 100%.
Consolidated Appropriations Act 2021
First, we must look-back to what occurred in March 2020. Last year, the government “stopped the clock” and extended certain COBRA deadlines for former employees should they need additional time to elect and/or pay for COBRA. This “pause” is applicable to former employees that worked for a company that is subject to Federal COBRA (20 or more employees).
The deadlines were “paused” during the Outbreak Period, which was defined as starting March 1, 2020 through 60 days after the end of the National Emergency. As of this writing, the government has not declared an End Date, so they clarified that the “pause” cannot last longer than 1 year from the former employee’s original election/payment deadlines.
This clarification was included in the Consolidated Appropriations Act 2021 and it requires employers to notify all former employees of their new COBRA election/payment deadlines. The Department of Labor has not and will not be creating a model notice for this requirement and has left it up to the employer and/or COBRA plan administrator to create one that works best for them.
What does the Employer Need to Do?
Create a letter that outlines the new COBRA election/payment deadlines.
Compile a list of all former employees that were enrolled in your medical plan that were terminated as of January 1, 2020 onward.
Make a copy of the letter and mail to your list of ex-employees. The letter can be sent out via First-Class Mail.
To assist in understanding the new deadlines, below are two examples:
Example 1: Initial Election of COBRA
Original Deadline to Elect COBRA: May 1, 2020
New Election Deadline: May 1, 2021
COBRA will be retroactively reinstated back to May 1, 2020
Example 2: Paying for COBRA
Original COBRA Payment Deadline for May 2020: May 31, 2020
New COBRA Premium Due Date: May 31, 2021
American Rescue Plan Act (ARP)
On March 11, 2021, President Joe Biden signed into law the American Rescue Plan Act (ARP), which provides former employees 100% COBRA premium assistance for group medical, dental, vision and HRA benefits. The subsidy began on April 1, 2021 and will run through September 30, 2021.
The subsidy is available to former employees that are currently enrolled in Federal COBRA as well as former employees currently enrolled in State Continuation (Mini COBRA). There are slight differences of what benefits are eligible for the subsidy based upon whether or not the employer is subject to Federal COBRA or subject to State Continuation (Mini COBRA).
Let’s review employers that are subject to Federal COBRA first.
The subsidy is available to:
All former employees who are currently enrolled in Federal COBRA.
All former employees that have been terminated from eligible benefits that are still within their 18 months of COBRA eligibility.
Subsidy will provide 100% COBRA premium assistance for group medical, dental, vision and HRA benefits.
What Does This Mean for you the Employer?
The Employer is required to notify all Assistance Eligible Individuals (AEI) regarding the subsidy option. The Department of Labor has created model notices, which can be found at www.dol.gov/agencies/ebsa/laws-and-regulations/laws/cobra/premium-subsidy.
What is this New Term AEI? An AEI is Defined as:
Must be Involuntarily Terminated from employment or have a Reduction in Hours.
The termination must have occurred on or after November 1, 2019.
They cannot be eligible for other group insurance or Medicare.
They do not have to be currently enrolled in COBRA through your company.
Once the list of AEIs is compiled based upon the above requirements, the employer can decide if they would like to extend the opportunity for the AEIs to select another health plan option the company might offer (only if applicable). An employer is NOT required to offer this option.
Please be aware that these notices must be mailed out on or before May 31, 2021. Failure to do so, could result in a fine of $100 per qualified beneficiary per day (capped at $200 per family per day).
How Does the AEI Receive the Subsidy?
It is important to know that the subsidy is not automatically applied. They must inform the employer they want to elect the subsidy and for which benefits (i.e., medical, dental, etc.). The former employee has 60 days from the date of their Subsidy Election Notice to notify the employer.
The Subsidy is Elected. What Happens Next?
If the AEI was not currently enrolled in COBRA, they are eligible to start as of April 1, 2021. For April – September 2021, they will not be sending in any premium payments. Once enrolled, they will appear on the employers’ appropriate invoices, which should be paid as billed.
It should be noted that employers will receive a tax credit for each employee that is receiving the subsidy against the Medicare Payroll Taxes, using Tax Form 941. Further guidance will be provided by the IRS.
Last Step for the Employer
For an employer who has former employees on COBRA with the subsidy, they are also required to notify the AEIs when the subsidy will be ending. An End of Subsidy Notice was created by the DOL and can be located on their website. This notice must be sent at least 45 days prior to the end of the subsidy; at that time the former employee can elect to stay on COBRA, as long as their 18 months are not exhausted and their payments will begin.
As mentioned above, former employees that work for employers that are subject to State Continuation (Mini COBRA) are eligible for the subsidy as well. Many of the requirements are the same as Federal COBRA, with four very important differences.
The subsidy is available to:
Former employees who are currently enrolled in State Continuation (Mini COBRA)
Employees who have a Termination or Reduction of Hours between April 1, 2021 – September 30, 2021.
The subsidy will provide 100% premium assistance for group medical plan coverage only.
The employer will NOT be billed for the COBRA coverage and the insurer will receive the tax credit, not the employer. (We are waiting for further guidance from the insurance carriers on how they will process).
The Department of Labor has also created a special State Continuation Notice for employers to use for qualifying events that occur between April – September, which outlines the subsidy information. This model notice can be found at their website: www.dol.gov/agencies/ebsa/laws-and-regulations/laws/cobra/premium-subsidy.