What You Need to Know About The New American Rescue Plan Act – COBRA Subsidy

UPDATE

Part 2

An update to our previous note, we now have additional details regarding the COBRA Subsidies, Notices, Rules, etc. so we wanted to get the below sent out as soon as we could. We also wanted to provide a few updates based on some of our questions that have now been answered.  As always, if we can help with anything at all or if you feel now is the time to have someone start handling your COBRA administration please let us know.  We’re happy to help you find / source a vendor to handle that work for you.

Q: What do the notices look like that we need to send out, and when will they be available?
A: We just got notification that these were all released today by the DOL’s Employee Benefits Security Administration (EBSA). Links are below for five different model notices:

  1. General Notice and Election Notice
  2. Notice in Connection with Extended Election Period
  3. Alternative Notice
  4. Notice of Expiration of Premium Assistance
  5. Summary of the COBRA Premium Assistance Provisions

Q: How do employers get reimbursed for these added costs through their tax filings?
A: Still unknown but you should begin speaking with whoever files your taxes NOW; this will more than likely be an upcoming IRS information release directed at CPA’s, accountants, tax filers, etc.

Q: Is this rule subject to only COBRA eligible employers (those with 20 or more employees on average), or does this also apply to smaller companies that are not subject to COBA and only are required to offer State Continuation?
A: This rule applies to COBRA AND State Continuation, so depending on the size of your company and the program you have in place, you might need to offer this program to your former employees even if you are not COBRA eligible.  For example, fully insured programs in the State of Texas that are not COBRA eligible (less than 20 fulltime employees) do have a 9 month State Continuation rule that this would apply to. Below is an FAQ the DOL released and also a link to the dedicated COBRA Premium Subsidy Page.  One thing I want to make note of, the FAQ is really aimed at the former employees, it does not touch too much on employer questions.

  1. COBRA Premium Subsidy FAQs
  2. COBRA Premium Subsidy dedicated page

Thanks so much everyone!  Please let us know if we can help at all with any of these new regulations.


Part 1

We hope you are all doing well. We wanted to get you a few high-level notes regarding recent legislation passed by the government in March and went into effect on April 1st. There is a lot of confusion around the legislation, and rightfully so, as the new laws and mandates for employers are supposed to start April 1st, yet the DOL & IRS haven’t provided all of the guidance on how an employer can comply with these laws.

Below is a high-level summary of what has transpired so far, and what we know is solid at the moment (thanks to BCBS of TX for the below verbiage). FROM BCBS of TX –

The American Rescue Plan Act – COBRA Subsidy

On March 11, 2021, President Biden signed into law the American Rescue Plan Act (ARPA) of 2021. This law is designed to provide additional relief concerning the ongoing COVID-19 pandemic and includes several significant changes to COBRA coverage.

ARPA offers a federal subsidy of 100 percent of the COBRA continuation coverage premiums for qualified beneficiaries who

  • are within their COBRA eligibility period during the subsidy availability timeframes, which are April 1, 2021, through Sept. 30, 2021, and
  • their COBRA qualifying event was the covered employee’s involuntary termination of employment or reduction of hours.

These individuals are referred to as Assistance Eligible Individuals (AEIs).

ARPA allows qualified beneficiaries who meet the criteria below to elect COBRA and qualify for subsidized premiums:

  • 100% subsidy for those who were involuntarily terminated or who had a reduction in hours (excludes those who voluntarily terminated or who were terminated for gross misconduct).
  • The subsidy period is April 1, 2021, through Sept. 30, 2021.
  • Includes those previously terminated who have or would have had COBRA eligibility during the subsidy period.
  • Provides for a new special 60-day election period for those who are
    • eligible per the Act and previously did not elect COBRA coverage,
    • or were canceled for non-payment,
    • or dropped COBRA coverage but are still within their COBRA period.
  • The employer provides the subsidy and recovers it subsequently through payroll tax credits.

Thanks to BCBS of TX for the above language. That is much cleaner than what we’ve seen from some others, which is why I am borrowing it.

From the above information, what we are not seeing is that the mentioned 100% subsidy equates to this:  As the employer, if you have any of these new AEIs who elect this coverage, you are required to pay 100% of their insurance premiums for potentially this entire timeframe, and you will get paid back by the government on your quarterly tax filings in the form of tax credits.

The missing piece I mentioned above regarding the IRS is the guidance on HOW DO employers get their tax credits.  We do not know that yet, BUT I highly recommend you reach out to whoever handles your quarterly tax filings, probably your payroll company or CPA, and start talking about what they expect to see in that environment.  This could be extremely important and potentially costly if you have had a good amount of turnover in the last year to a year and a half.  They will become your best friend during this timeframe as they will get you reimbursed for the premiums the government is requiring you to pay.  Make your tax professionals know 100% how much you have spent during this timeframe on insurance for all these former full-time employees so they can reimburse you.

The other item we highly recommend you start thinking about and working on will be a list of all employees who were either involuntarily term’d OR employees who had a reduction in hours (it does not matter if it is voluntary or not) on or after 11/1/19.  These are the former benefits-eligible people the law states must be provided these new notices (the AEIs as they are now called), alerting them of the 100% COBRA subsidy.  That gets me to the other point I made above.  The “subsidies” and the “free for prior benefits-eligible employee coverage” begins 4/1. YET we do not have the notices from the Department of Labor to tell anyone about these “government-provided benefits.”  The items your COBRA vendor will more than likely need will be name, SSN, original qualifying event date, and type, plus the benefits the employees had previously. Hence, they know what to offer them to enroll in.  Also, please note, if there are any involuntary terms or employees who have reduced hours between now and the end of August, they also need to receive these notices once, so don’t forget about them.

If you have a payroll company or COBRA vendor who handles COBRA administration on your behalf (which most companies do), you will more than likely be getting some requests from them shortly, if you haven’t already, detailing what they need from you so they can send these notices once they become available.  If you’ve not spoken to them, I recommend talking to your point of contact there so you can start collaborating on what they need to assure you remain in compliance.  If you manage COBRA for your company internally, be on the lookout for the notices planned for release by mid-April and be ready to send these out certified mail, so you have proof they were sent.  Remember that list of former employees we talked about before dating back to 11/1/19?  That’s who all these notices are going to need to be sent to.  This might be as good of a time as ever to consider outsourcing your COBRA administration.  This new COBRA law with its subsidy has the potential to get messy over the next 6 – 9 months, and COBRA on its own usually isn’t too costly at all.  If you need help finding a COBRA administrator, we’re happy to help; please let us know.

Above is a summary of what we do know. Here’s what we don’t know:

Q: What do the notices look like that we need to send out, and when will they be available?
A: We don’t know. They have not been released, but the expected timeframe is mid-April.

Q: How do employers get reimbursed for these added costs through their tax filings?
A: Again, we don’t know, but you should begin speaking with whoever files your taxes NOW.

Q: Is this rule subject to only COBRA eligible employers (those with 20 or more employees on average), or does this also apply to smaller companies that are not subject to COBA and only are required to offer State Continuation?
A: We don’t know.  There is some mention of State Continuation in the guidance, but it is mentioned alongside COBRA, which larger groups do have to comply with if they are fully insured.

When answers become available, we will send additional updates tailored more to company size and employee count.  Please let us know what questions on the above, and we will answer what we can.

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