ARPA COBRA Subsidy FAQs
With so much influx, one could say that right now is the most crucial time for employers, brokers, and OCA to work in tandem to ensure COBRA compliance.
American Rescue Plan Act of 2021
On March 11, 2021, the American Rescue Plan Act of 2021 (ARPA) was signed into law. Although the ARPA COBRA subsidy is similar in many aspects to the 2009 ARRA subsidy, it is also very different. Shortly after the ARRA was enacted in 2009, the IRS issued guidance that provided clarification to several issues and so we anticipate similar guidance with respect to the ARPA. Consequently, OCA – like many in the industry – continue to digest the rules – looking to the 2009 ARRA guidance to help find clarity as we anticipate guidance from the IRS in the near future. Here you will find the latest regulatory updates, COBRA process changes, and more, so that our clients are up to date will all the COBRA operational changes taking place.
OCA’s ARPA Operational Update (Week of April 12th)
Step 1 – Identifying Assistance Eligible Individuals (AEI)
OCA has completed its list of all potentially eligible individuals for the subsidy. Remember, this was the first challenge we faced. Historically, the industry did not track voluntary vs. involuntary terminations, so it’s critical we work together to confirm the AEI list.
Step 2 – Finalize Client Communication Strategy of AEI List
This has been completed. OCA will be finalizing its AEI communication strategy with employers and brokers. OCA’s goal is to be proactive by taking a two prong approach. First, by confirming with employers/brokers the AEI list and then reaffirming eligibility when we issue the special election notice to the AEI.
Step 3 – Communicating AEI List to Clients
OCA’s dedicated COBRA team worked over the holiday weekend to ensure our clients began receiving their potential AEI list ahead of schedule. Only employers subject to Federal COBRA and who had a termination or reduction of hours in the last 17 months would have received this email. This was completed on April 5th.
When Will Notices Be Sent?
On Wednesday, April 7, the Dept. of Labor (DOL) issued ARPA Model Notices. Currently, we are reviewing the DOL model notices and consulting with our legal counsel as historically, the notices provided by OCA have included more robust language than those provided by federal agencies. Keep in mind that ARPA requires the notices be sent by May 31, 2021, so we are still well within the timeframe to remain compliant. We will send a follow up email once we have an exact timeframe of when OCA will be issuing the ARPA notices.View Model Notices
OCA’s ARPA/COBRA Subsidy Webinar
OCA hosted a webinar with Ashley Gillihan of Alston & Bird, LLP on Thursday, April 1 for a deep dive into the newly passed American Rescue Plan Act (ARPA) and its impact on COBRA administration.
OCA’s Subsidy Verification Form
Please make sure you respond to OCA’s ARPA Verification email. This email provided clients with their list of potential AEIs and required a response back using OCA’s ARPA Verification Form. Only employers subject to Federal COBRA and who had a termination or reduction of hours in the last 17 months would have received this email.
ARPA COBRA Subsidy- Assistance Eligible Individual FAQs
Who qualifies as an assistance eligible individual?
Eligible individuals are those who had an involuntary termination or had a reduction in hours and are not eligible for other group health plan coverage (other than excepted benefits such as dental or vision) or Medicare. There is $250 penalty imposed on the QB who fails to notify the plan of eligibility for other coverage.
When does the premium subsidy begin and end?
ARPA establishes a 100% COBRA premium subsidy for eligible individuals during the period beginning on April 1, 2021 and ending on September 30, 2021.This means that even eligible individuals who lost health coverage as far back as November 2019 may benefit from the subsidy, since their 18-month maximum COBRA period will not expire until the end of April 2021.
Can an eligible individual who either did not previously elect COBRA or elected but let their coverage lapse still qualify for the COBRA subsidy?
Yes. The subsidy is available to employees who did not elect COBRA coverage during their original election period as well as those who initially elected COBRA but let their coverage lapse. These individuals must be offered an additional window of at least 60 days to elect COBRA coverage. Of course, since COBRA election deadlines have been extended during the pandemic as a result of the DOL/IRS deadline tolling guidance (see notice 2021-01), many individuals are still within their original COBRA election periods.
This special election opportunity allows these individuals to make a prospective COBRA election for the period beginning April 1, 2021, without requiring payment of premiums retroactive to the original loss of coverage. Keep in mind the maximum COBRA period is not extended in such a case (that is, it is still counted from the date of the original qualifying event).
For example, an individual has a qualifying event on 5/1/20, but they did not elect, could now prospectively elect COBRA on 4/1/21 and receive the subsidy. The QB would only be eligible to continue COBRA for the remaining months had they elected beginning 5/1/20.
Is the extended election period available to individuals whose continuation coverage is provided pursuant to state law only?
The extended special election does NOT apply to state continuation by virtue of the statute. It will only affect state continuation folks going forward.
Does the subsidy apply to the individual only or also to dependents?
Yes. The subsidy will apply to any qualified beneficiary (QB) who loses coverage as a result of the covered employee’s involuntary termination of employment or reduction in hours and who otherwise meets the eligibility criteria is eligible for the subsidy. Consequently, if a covered employee does not elect COBRA but the QB spouse does, the spouse would be eligible for the subsidy (assuming the spouse is not eligible for other group health coverage or Medicare).
What if the involuntarily AEI is now eligible for other group health plan coverage. Can their dependent still qualify for the subsidy?
It is possible. Each situation would need to be examined to determine subsidy eligibility. The subsidy eligibility is tied to each QB who loses coverage due to the covered employee’s involuntary termination/reduction in hours. In most cases, if the termed employee is eligible/enrolled in other coverage, the QB spouse/children are eligible, but that will not ALWAYS be the case. Also, if the employee previously elected self only COBRA, the QB spouse/children that didn’t elect COBRA will now get second bite at the apple too, if they are not eligible for other coverage.
If an assistance eligible individual is eligible for other group health plan coverage but does not enroll in the other group health plan coverage, is the premium reduction available for the individual’s COBRA continuation coverage after the date the individual is first eligible for the other coverage?
No. Based on 2009 ARRA guidance please find the following examples;
Example 1. An assistance eligible individual begins employment with a new employer and is eligible to enroll in the employer’s group health plan, with coverage effective the first day of the next month. The assistance eligible individual declines the coverage and continues COBRA continuation coverage. Although eligibility for other group health coverage does not end the individual’s eligibility for Federal COBRA, the premium reduction is no longer available as of the first day of the next month.
Example 2. Same facts as Example 1, except that the new employer’s group health plan imposes a 2-month waiting period. The premium reduction stops being available as of the first day after the end of the waiting period, even though the employee declined coverage under the plan. It is the same result if the employee had enrolled for coverage; the premium reduction would apply until the first day after the end of the waiting period.
ARPA COBRA Subsidy- Involuntary Termination FAQs
What circumstances constitute an involuntary termination for purposes of the definition of an assistance eligible individual?
While the definition of an “involuntary termination” may change if/when the DOL issues additional guidance for ARPA, the 2009 ARRA guidance stated the following:
An involuntary termination means a severance from employment due to the independent exercise of the unilateral authority of the employer to terminate the employment, other than due to the employee’s implicit or explicit request, where the employee was willing and able to continue performing services. An involuntary termination may include the employer’s failure to renew a contract at the time the contract expires, if the employee was willing and able to execute a new contract providing terms and conditions similar to those in the expiring contract and to continue providing the services. In addition, an employee-initiated termination from employment constitutes an involuntary termination from employment for purposes of the premium reduction if the termination from employment constitutes a termination for good reason due to employer action that causes a material negative change in the employment relationship for the employee.
Involuntary termination is the involuntary termination of employment, not the involuntary termination of health coverage. Thus, qualifying events other than an involuntary termination, such as divorce or a dependent child ceasing to be a dependent child under the generally applicable requirements of the plan (such as loss of dependent status due to aging out of eligibility), are not involuntary terminations qualifying an individual for the premium reduction. In addition, involuntary termination does not include the death of an employee or absence from work due to illness or disability.
The determination of whether a termination is involuntary is based on all the facts and circumstances. For example, if a termination is designated as voluntary or as a resignation, but the facts and circumstances indicate that, absent such voluntary termination, the employer would have terminated the employee’s services, and that the employee had knowledge that the employee would be terminated, the termination is involuntary.
Does involuntary termination include an employer’s action to end an individual’s employment while the individual is absent from work due to illness or disability?
Yes. Involuntary termination occurs when the employer takes action to end the individual’s employment status (but mere absence from work due to illness or disability before the employer has taken action to end the individual’s employment status is not an involuntary termination).
Does an involuntary termination include a lay-off period with a right of recall or a temporary furlough period?
Yes. An involuntary reduction to zero hours, such as a lay-off, furlough, or other suspension of employment, resulting in a loss of health coverage is an involuntary termination for purposes of the premium reduction.
Does involuntary termination include involuntary termination for cause?
Yes. However, for purposes of Federal COBRA, if the termination of employment is due to gross misconduct of the employee, the termination is not a qualifying event and the employee and other family members losing health coverage by reason of the employee’s termination of employment are not eligible for COBRA continuation coverage.
ARPA COBRA Subsidy- Plans Subject to Premium Reduction FAQs
What group health plans are subject to the premium subsidy?
Eligible individuals can receive 100% subsidy for the “COBRA premium” for all group health plans other than Health FSAs. The COBRA premium includes medical, dental, vision, HRAs, and the standard 2% COBRA administration fee.
Does the ARPA subsidy apply to State Continuation?
Yes, the premium subsidy is applicable in states that have a state continuation law. In most states, the premium subsidy assistance would be applicable to only the fully insured medical plan. For groups subject to state continuation, the insurance carrier would be the one receiving the premium tax credit, not the employer.
Who covers the cost of the coverage that is subsidized?
– It varies depending on the situation.
– The entity covering the premium gets a credit against the HI portion of FICA tax.
Covering entity (referred to in the statute as the entity to whom the premium is payable)?
– If Multi-employer plan—the Plan itself.
– If plan is subject to Federal COBRA or is self-funded plan subject to state continuation—the employer maintaining the plan.
– If neither of the above apply, the insurer.
-This will be fully insured statute continuation coverage.
If an assistance eligible individual receiving a premium reduction from an employer fails to provide notice of the individual’s eligibility for coverage under any other group health plan or Medicare and continues receiving the premium reduction, is the employer required to refund to the IRS the payroll tax credit relating to the premium reduction provided with respect to the period after the individual’s eligibility for the premium reduction ended due to eligibility for coverage under the other group health plan or Medicare?
We don’t believe so. Under the 2009 ARRA guidance, the answer would have been the following:
No. If the employer has claimed a payroll tax credit for the premium reduction, the employer is not required to refund to the IRS the excess premium reduction received as a credit merely because the assistance eligible individual failed to provide notice that the individual is no longer eligible for the premium reduction due to eligibility for coverage under any other group health plan or Medicare unless the employer otherwise knew of the eligibility for such coverage. The assistance eligible individual who failed to provide notice may be subject to a Federal tax penalty of 110 percent of the premium reduction improperly received.
The penalty will not apply if it is shown that individual’s failure to provide notice was due to reasonable cause and not to willful neglect. The employer who received the credit against payroll taxes in the amount of the excess premium reduction has no rights to the penalty payment.
ARPA COBRA Subsidy- OCA Operational Changes
How will OCA be handling COBRA premiums paid for April?
If it is determined that a QB is an AEI, but had paid their April and any future premium prior to receiving the special election notice, OCA will be refunding the paid premium to the participant. To help prevent the ebb and flow of refunds, OCA will be limiting it’s premium remittance schedule to the employer.
If OCA has already remitted premiums to the employer for later determined subsidized months, the employer will be required to issue a refund to OCA. OCA will then remit a refund to the COBRA participant. Employers should not be refunding the COBRA participant directly.
Please note this will effect any payments received on/after March 30, 2021, regardless of the months that the premium applies to.
What Clients Need to Know…For Now
For starters, don’t worry. OCA will be helping our clients every step of the way so that they remain complaint with ARPA. To stay up to date, please continue to visit our ARPA resource page at oca125.com/subsidyfaqs/.
Secondly, make sure you respond to OCA’s ARPA Verification email. This email provided clients with their list of potential AEIs and required a response back using OCA’s ARPA Verification Form. Only employers subject to Federal COBRA and who had a termination or reduction of hours in the last 17 months would have received this email.
Currently, we are reviewing the DOL model notices and consulting with our legal counsel as historically, the notices provided by OCA have included more robust language than those provided by Federal Agencies. Keep in mind that ARPA requires the notices be sent by May 31, 2021, so we are still well within the timeframe to remain compliant. We will send a follow up email once we have an exact timeframe of when OCA will be issuing the ARPA notices.
We recommend clients maintain a business as usual process for the month of April. Since so much of ARPA is still in flux, we are advising existing COBRA participants to continue paying their monthly premium payments. If it is later determined that an individual is eligible for the subsidy, but had paid their April (and any future) premium prior to receiving the ARPA notice, OCA will be refunding the paid premium to the participant. To help prevent the ebb and flow of refunds, OCA will be limiting its premium remittance schedule to the employer.
Lastly, based on the DOL model notices it appears that all eligible AEIs will be asked to “apply” for the ARPA premium assistance. AEIs will need to complete a “Request for Treatment as an Assistance Eligible Individual.” To view the DOL sample model of this request, please click here. This form will be included in OCA’s ARPA notice and will be collected by OCA for subsidy confirmation.