Immediate Action Required
As discussed in our prior posts, the American Rescue Plan Act of 2021 (“ARP”) requires that plan administrators distribute new COBRA notices advising individuals of their possible rights to a COBRA premium subsidy. Yesterday, the U.S. Department of Labor released new COBRA premium subsidy model notices and FAQs explaining how that is to be done.
New COBRA election notices must now be used for all qualifying events. Also, special COBRA election notices explaining ARP rights to individuals who terminated before April 1, 2021 must be provided by May 31, 2021. Notice of termination of the availability of the subsidy might have to be provided within the next few days (depending on when an individual’s COBRA premium subsidy expires).
Plan administrators and employers have to act swiftly to ensure compliance with ARP’s COBRA notice obligations. Read below for more details about the notices and next steps.
Notice of Extended Election Period – Second Bite at the Apple
Plan administrators are required to provide a special extended COBRA election notice to assistance eligible individuals who became entitled to elect COBRA before April 1, 2021. The notice provides such individuals information about the subsidy, as well as an opportunity to elect COBRA if not already enrolled. This notice must be distributed to assistance eligible individuals currently enrolled in COBRA, as well as those who would currently be assistance eligible individuals if they had, as of April 1, 2021, either elected COBRA or elected COBRA coverage and not discontinued it before April 1.
Reminder: An assistance eligible individual is any qualified beneficiary who lost group health coverage because of a covered employee’s reduction in hours or involuntary termination of employment and whose maximum COBRA period has not expired by April 1, 2021.
General COBRA Election Notice – Updated with COBRA Premium Subsidy Information
During the COBRA subsidy period (April 1, 2021 through September 30, 2021), all qualified beneficiaries who become entitled to elect COBRA coverage must be provided a COBRA election notice that includes information about the availability of the premium subsidy—regardless of whether the qualified beneficiary is actually eligible for the subsidy. To address this requirement, the DOL released a “Model ARP General Notice and COBRA Continuation Coverage Election Notice,” which includes the necessary subsidy information. Plan administrators may use this model form (modified as necessary for the plan), along with the “Summary of COBRA Premium Assistance Provisions” document, to satisfy ARP’s COBRA notice requirements for qualified beneficiaries with qualifying events during the COBRA subsidy period.
Below are two important points to consider when using the Model ARP General Notice and COBRA Continuation Coverage Election Notice:
- Deadline to Elect COBRA Subsidy Keyed to “Receipt” of Notice: The Model ARP General Notice requires that assistance eligible individuals elect COBRA and the premium assistance within 60 days of receipt of the COBRA election form—not the date of the notice. This is contrary to the normal COBRA rules, which require that qualified beneficiaries elect COBRA sixty days from the date of the notice. We understand that the DOL did not intend to modify the general standard by using this language.
- Model ARP General Notice Includes Unrelated Updates: In an unexpected twist, the DOL updated other sections of its model election notice unrelated to the COBRA premium subsidy. Because the DOL has not aligned its other model COBRA general election notice (without the premium subsidy language) with these changes, an open question for the future is whether plan administrators should revert to the prior model election notices when the Model ARP General Notice expires on October 31, 2021—or whether these unrelated changes should be carried forward.
Notice of Expiration of Subsidy Period
Under ARP, plan administrators are required to notify assistance eligible individuals in advance of the expiration of their COBRA premium subsidy—either on account of the end of their maximum period of COBRA coverage, or, the end of the COBRA subsidy period (September 30, 2021). The expiration notice, viewable here, must be sent to assistance eligible individuals not less than 15 days nor more than 45 days before their subsidy expires.
Note: For example, if an assistance eligible individual is entitled to one month of the COBRA premium subsidy (because their qualifying event took place 17 months prior to April 1, 2021), the notice of expiration must be sent at least 15 days in advance of May 1, 2021 – leaving plan administrators with very little time to distribute the required notice in light of the recent release of the model notice.
Time is of the essence. Given the short window between the release of the model notices and the statutory deadlines, plan administrators will need to quickly coordinate distribution of the extended election notices to assistance eligible individuals by May 31, 2021. In addition, plan administrators will need to ensure that updated COBRA election notices are in place to distribute to qualified beneficiaries with a qualifying event on or after April 1, 2021.
One final caution: Noncompliance with these rules could result in DOL enforcement under ERISA and/or COBRA excise tax penalties. So the time to act is now.
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Stay tuned for more insights about the new DOL guidance about the COBRA premium subsidy, including questions answered (and questions raised) by the DOL in its interpretive FAQs released with the model notices. Also, we are expecting additional guidance from the IRS on how to implement the rules on the availability of the premium subsidy and apply for the tax credits. We will send more information about that guidance as well.