Early this month, the DOL issued the model notices to be used for the COBRA subsidy that is part of the American Rescue Plan Act (ARPA). In addition, the EBSA has issued FAQs that address some of the outstanding items surrounding the subsidy. This initial guidance does not include details on administering the employer tax credit designed to reimburse employers for the COBRA premiums. The IRS has issued a draft Form 7200 for employers to claim an advance payment of the tax credit, but we anticipate that the IRS will also issue a revised Form 941 and additional guidance in the near future. We recommend that clients reach out to their accountants and/or payroll vendor for assistance regarding the tax credit. Diversified is unable to give tax advice regarding the actual filing for the credit but we can and will assist clients with the reportable amounts based on the members electing the subsidy.
DOL MODEL NOTICES
The model notices released can be found here. The notices posted include:
- General Notice and Alternative Notice – The general notice is used for any qualified beneficiary who loses coverage due to a reduction in hours or an involuntary termination between April 1, 2021 and September 30, 2021. An alternative notice is used for plans subject to state continuation coverage.
- Extended Election Notice – The extended election notice should be sent to all assistance eligible individuals who are still in the 18-month window. Employers must send the extended election notice before May 31, 2021 if the individual is currently enrolled in COBRA, enrolled in COBRA previously and later dropped COBRA continuation coverage, or previously declined COBRA continuation coverage.
- Notice of Expiration of Period of Premium Assistance – The notice of expiration informs AEIs that the COBRA subsidy will soon be expiring and that the individual may be eligible for Medicaid, coverage through the Marketplace, or unsubsidized COBRA continuation coverage. The notice of expiration must be sent 15 to 45 days before the COBRA subsidy expires.
Diversified Response: To incorporate the 18 months of potential COBRA continuation, this would mean looking at individuals who were made a COBRA offer as far back as October 2019. For our COBRA and TPA administrative clients, we have run reports for your review that identify these members to ensure they are properly notified. If you haven’t already, please review these and return them as soon as possible. For our COBRA only clients, we will be sending you a notification that asks you to verify the COBRA termination reason for past COBRA eligible participants. For new Diversified clients, we have reached out for assistance to identify past COBRA qualified beneficiaries. For our COBRA administration clients, we are working with our COBRA system partner to ensure timely distribution of the appropriate notices. We will handle distributing them to assistance eligible individuals. We will notify the plan sponsor of any individual who needs to be reinstated on the plan. Diversified will continue to charge our COBRA administration clients all related COBRA administrative fees during the subsidy time frame including the 2% administrative fee and any notice fees. These administrative charges will be processed on your monthly invoice. ARPA has given plans until 5/31 to reach out for the extended election period. It is Diversified’s intent to meet this deadline. We ask for your assistance in reviewing and verifying any data request to identify assistance eligible individuals to ensure the deadline is met.
The frequently asked questions can be found at the same DOL link above. The FAQs clarify that under the ARPA, eligibility for Medicare or other group health coverage, such as coverage under a spouse’s employer’s plan or a new employer’s plan, would make an individual ineligible for the COBRA subsidy. Additionally, the FAQ guidance makes clear that eligibility for Medicaid or individual Affordable Care Act (ACA) marketplace coverage does not make an individual ineligible for the COBRA premium subsidy. In fact, the FAQs point out that individuals may want to drop individual coverage or Medicaid to take advantage of the subsidy period. Although the FAQs clarified many areas of confusion, there are still many unanswered questions, such as:
- The FAQs do not clarify when a particular termination of employment should be considered voluntary or involuntary. For example, whether mutual separations or voluntary reduction in force programs are eligible for subsidy;
- The DOL does not specifically state that disabled individuals or family members with second-notice rights, who are eligible for longer COBRA continuation periods, can elect coverage as long as their longer continuation period includes the April 1 to September 30 window;
- The guidance also does not address the treatment of an employer subsidy for COBRA premiums, which is often provided under a severance plan or employment agreement.
OPTIONAL PLAN DESIGN CHANGE SELECTION
In addition to premium relief, the bill includes an optional provision that would allow an individual eligible for COBRA premium assistance to change their health plan option to a lower cost plan. Alternative coverage cannot be an excepted benefit, such as limited purpose dental or vision benefits, a QSEHRA or a flexible spending account. An AEI may not enroll in a plan with a higher premium than the plan the AEI was enrolled in at the time of the qualifying event, and enrollment in the plan must occur within 90 days of the date notice is given. Allowing for a change in coverage is an optional provision only, plan sponsors are not required to adopt this provision.
Diversified Response: If a plan sponsor does want to allow COBRA subsidy eligible individuals to select a lower cost health plan when electing COBRA, we would need to amend your plan accordingly, please contact your Diversified Account Executive if this is your intent.
We anticipate further guidance from the IRS that will hopefully clear up some of these unknown questions. Diversified will continue to update you as new information is available, please feel free to contact your Diversified Sales Rep or Account Executive with questions at (888) 322-2524.