Among the most important is a federal subsidy for “assistance eligible individuals” equal to 65% of the premium for COBRA coverage. Under the ARRA, “assistance eligible individuals” are treated as having fully paid their COBRA premiums if they pay 35% of the regular premium for continued health plan coverage.
- The American Rescue Plan Act of 2021 (“ARPA”), includes a 100% COBRA premium subsidy for periods of coverage occurring between April 1 and September 30, 2021. The subsidy is available to qualified beneficiaries who are eligible for COBRA coverage due to a covered employee’s reduction in hours of employment or involuntary termination of employment.
How do you qualify for the COBRA subsidy?
To receive COBRA premium assistance, an individual must be an “Assistance Eligible Individual,” which is defined in Notice 2021-31 as any individual who: (1) is a qualified beneficiary as the result of the covered employee’s reduction of hours or involuntary termination of employment; (2) is eligible for COBRA coverage
How does employer get credit for COBRA subsidy?
Employers claim the tax credit by reporting the credit on its federal quarterly employment tax returns (usually Form 941). If an employer’s anticipated quarterly tax credit exceeds their quarterly Medicare tax obligations, then they can use Form 7200 to request an advance of the tax credit (see discussion below).
What does COBRA subsidy mean?
The state law is called Cal-COBRA (sometimes also called “ supplemental COBRA ”). The law is sometimes referred to as ARPA. ARPA provides premium assistance equal to 100% of the amount of the premium for eligible individuals to continue their employer-provided health care coverage after a job loss or reduction in hours.
Who pays for ARPA COBRA subsidy?
The COBRA subsidy applies to plans sponsored by State or local governments, including small governmental employers (i.e., < 20 employees) that are exempt from federal COBRA but subject to Cal-COBRA. Employers must pay the subsidy but can subsequently recover the subsidy via federal tax credits.
What is the Cobra subsidy 2021?
The American Rescue Plan Act of 2021 (ARPA) provides for a 100% COBRA premium subsidy for up to six months, from April 1, 2021 through September 30, 2021, for Assistance Eligible Individuals (AEIs) as defined under the guidance.
How do I get a 2021 COBRA subsidy?
How Does the COBRA Subsidy Work?
- An Employee Becomes Eligible for COBRA: Typically as a result of termination or a reduction in hours.
- The Employer Notifies All Qualifying Employees About the COBRA Subsidy: This was to be done beginning April 1, 2021, within 60 days of the employee’s qualifying event.
Will the COBRA subsidy be extended past September 2021?
COBRA Subsidy Under the American Rescue Plan of 2021 ends September 30, 2021. The American Rescue Plan Act of 2021, the most recent stimulus and COVID-19 relief package, requires employers to extend offers of free COBRA coverage to certain qualified employees from April 1 through September 30, 2021.
Can you write off COBRA payments?
Premiums for COBRA insurance are tax deductible, as they are paid entirely by you on an after-tax basis. If you buy medical coverage through an insurance marketplace, then premiums would be tax deductible as a medical expense. Premiums for Medicare Part B, C or D along with Medigap coverage are tax deductible.
Will the COBRA subsidy be extended?
The American Rescue Plan provides subsidies to cover the full cost of COBRA premiums for displaced workers through September 30, 2021. This legislation would extend these subsidies through September 30, 2022. Currently, nearly 56 percent of American workers are insured through their employer.
Is COBRA being paid by government?
The rules in the $1.9 trillion relief bill passed in March seemed straightforward enough: The government would pay for people’s COBRA premiums for six months beginning on April 1.
Did the Cobra subsidy end?
With the COBRA subsidy period set to expire on September 30, 2021, plan administrators are required to notify AEIs of the subsidy’s expiration.
Is COBRA subsidy taxable?
A5. The premium subsidy is not included in income for federal tax purposes.
Can COBRA premiums be refunded?
Request a Refund for Amounts Paid in COBRA Premiums Exceeding Federal Employment Tax Liability: The employer may claim the Credit through an employment tax refund on the applicable employment tax return, generally Form 941, Employer’s Quarterly Federal Tax Return.
Who is eligible for ARPA?
ARPA Eligibility To qualify for ARPA funding, an individual CSPP site or a family child care home must be either: Open or. Temporarily closed due to a public health order, financial hardship, or other reasons related to the COVID-19 pandemic.
Does ARPA COBRA subsidy apply to dental?
The Notice clarifies that the ARPA subsidy covers dental and vision coverage as well as medical coverage. The ARPA subsidy only applies to individuals who lost their health care coverage on account of an involuntary termination or a reduction in hours.
ARRA vs ARPA: Comparing COBRA Subsidies and Administrative Challenges
COBRA subsidies have been a hot subject in the realm of employer-sponsored benefits since the passage of the American Rescue Plan Act (ARPA) in March 2021, according to a recent poll. While ARPA has a direct impact on those who have lost their employment since March 2020, it also has a substantial influence on how employers and COBRA administrators are dealing with the spike in COBRA eligibility that has occurred over the past year. ARPA has been compared to the American Recovery and Reinvestment Act (ARRA) of 2009, which was passed by Congress.
ARRA and ARPA: A Closer Look
However, the two pieces of law were adopted in direct reaction to a weak economy, but they were implemented under slightly different conditions. ARRA, which was passed in 2009, was intended to boost the economy following the “Great Recession,” during which more than 15 million people were out of work at its height. In comparison, more than 22 million individuals lost their employment during the early stages of the COVID-19 pandemic; as of December 2020, the United States still had 10 million fewer jobs than it did before the epidemic began.
Each bill approved a government COBRA subsidy for some qualifying persons in order to alleviate the pain of losing healthcare coverage. COBRA is often seen as an emergency tool for people who need to maintain temporary insurance coverage until they can find a more permanent solution to their problem. COBRA continuation coverage is sometimes prohibitively expensive due to the fact that the qualified individual must pay the whole premium (which includes both the employer’s and their own halves) as well as a 2 percent administrative charge.
- Under the Affordable Care Act, the COBRA subsidy paid 65 percent of the cost, leaving the Assistance Eligible Individual (AEI) to pay the remaining 35 percent of the premium.
- As a result of ARPA, the COBRA subsidy will pay 100 percent of AEI’s COBRA premium costs.
- Individuals who are insured by an employer’s group health plan and who suffer a qualifying event are eligible to enroll in COBRA in most cases under regular conditions (QE).
- For AEIs to be eligible for the ARRA payment, they had to have lost their jobs involuntarily between September 2008 and May 2010.
The requirements to be eligible for the ARPA subsidy as an AEI are more complicated. Despite the fact that the cause for employment termination does not have to be connected to COVID, the COBRA member must fulfill ALL of the requirements listed below:
- Depending on the situation, the QE was either an involuntary termination or a reduction in hours. This is because none of the other COBRA-qualified QEs are eligible for the ARPA Subsidy.
- The decrease in hours does not have to have been forced on the individual in order for them to be eligible. If your employment was terminated because of gross misbehavior, you will be ineligible for premium assistance.
- There are no exceptions to this rule, and the QB is ineligible for Medicare or any other medical coverage, either directly or through a spouse, with the exception of excluded benefits such as dental and vision. The QB is enrolled in COBRA on April 1, 2021, or elects COBRA between April 1, 2021 and September 30, 2021 during the special enrollment period established by ARPA between April 1, 2021 and September 30, 2021. (AEIs can opt COBRA during the special enrollment period even if they previously refused COBRA or elected COBRA and subsequently terminated coverage or allowed it to lapse, as long as they are still within their 18-month eligibility window.)
Length of Subsidy Coverage
The COBRA subsidy was offered for a maximum of 15 months under the ARRA. The subsidy is accessible under ARPA for a six-month period, from April 1, 2021, to September 30, 2021, and is only available during this time period. The ARPA premium subsidy might be phased off sooner if any of the following conditions are met:
- After becoming eligible for another group health plan, such as one offered by a new workplace or a spouse’s employer (which does not contain exempted benefits, QSEHRA, or health FSA), AEI becomes eligible for another individual health plan. AEI becomes eligible for Medicare
- AEI has reached the end of their COBRA continuation coverage period
- AEI is no longer eligible for Medicaid.
Problems for COBRA Administrators
COBRA administration is frequently outsourced by companies due to the complexity of the legislation regulating COBRA, which can result in severe financial penalties if the requirements are not followed. COBRA administrators under ARPA, like in the case of ARRA, have been placed under a significant amount of stress as a result of a slew of challenges relating to communications, deadlines, and fee collection, among other things.
Challenges posed by ARRA
COBRA administrators and technology suppliers were faced with a government COBRA subsidy for the first time since COBRA was introduced in 1985 when the Affordable Care Act was passed. Companies hurried to upgrade their systems to ensure that Third-Party COBRA Administrators could properly handle subsidized COBRA coverage when the Affordable Care Act went into effect. A great deal of uncertainty existed around how to apply the subsidy benefit as well as how to interact with employers and potential AEIs, among other things.
It is believed that almost one-third of those who qualified for the subsidy were either perplexed by or unaware of its existence.
ARRA was adopted in February 2009, and the subsidy began on March 1; however, it was applied retrospectively to people who were involuntarily dismissed between September 1, 2008, and February 16, 2009, as a result of the ARRA.
It was necessary to figure out the remaining 35 percent of the subsidy for each qualifying individual when the employer made a partial 65 percent payment (which would be reimbursed to the employer via a tax credit), and it was also necessary to figure out how to collect the remaining 35 percent from each covered participant.
Challenges presented by ARPA
The administration of ARPA is proving to be difficult, despite the fact that this is the second time around for COBRA subsidies for software developers and many TPAs. First and foremost, there is a muddled state of communications. Several sample notifications have been provided by the Department of Labor (DOL) and other federal agencies; however, legal experts are still debating how they should be used. Do you send out fresh notice letters on a regular basis? Do you send out supplements to messages that have previously been sent out?
- Another concern is the problem of eligibility and the election time.
- The process of deciding who is qualified and who is not causes a significant amount of labor and stress for administrators and businesses.
- Individuals’ customary 60-day election period has been suspended for a period of 12 months, in accordance with EBSA norms, which also suspends the necessity to make premium payments.
- It has become difficult for all parties concerned to follow what was once a clear procedure in the past.
- Patience and perseverance are essential.
- Note from the editor: Until September 30, 2021, ARPA allowed for a full COBRA subsidy, which has since beyond its deadline.
- In addition, the government is supporting a “Build Back Better” plan in order to generate employment, reduce taxes, and slash expenses in order to keep the economic recovery going.
- In order to decide the appropriate course of action for your employer plans, consult with your third-party administrator (TPA) or certified benefits counsel.
Since 2002, DataPath, Inc. has been dedicated to developing best-in-class COBRA management solutions. Summit COBRA, which was launched in 2017, is the industry’s first platform built to handle all aspects of COBRA and CDH account administration in an one place.
COBRA Health Insurance Continuation Premium Subsidy
21st of January, 2015 update: For premiums paid on behalf of workers who were involuntarily dismissed from their jobs between September 1, 2008 and May 31, 2010, an employer might claim a credit for the premiums paid on their behalf. After May 31, 2010, persons who were involuntarily dismissed from their employment are no longer eligible for the COBRA premium assistance credit. As a result, the credit will only be accessible in exceptional circumstances, such as those where COBRA eligibility was delayed as a result of the employer’s provision of health care coverage upon termination.
The duration of this subsidy has been extended till May 31, 2010.
Take a look at these resources:
- IR-2009-15, The Internal Revenue Service Provides Information to Assist Employers in Claiming the COBRA Medical Coverage Credit on the Payroll Tax Form
- Discussion of how to handle the COBRA continuation premium subsidies to departed workers
- Questions and answers The Notice 2009-27PDF, entitled “Premium Assistance for COBRA Benefits,” is available for download.
Employers should make use of the most recent version of:
- In order to disclose their COBRA premium aid payments, they must file Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund. Detailed instructions on how to complete lines 19a and 19b of Form 941-X, which pertain to COBRA premium assistance payments
Small businesses that fileForm 944, Employer’s ANNUAL Federal Tax Return — often those with an anticipated employment tax due of $1,000 or less in the calendar year — are eligible to claim their COBRA benefit onForm 944-X, which is a supplemental form to Form 944. Agribusinesses can also claim the COBRA credit on Form 943-X, Adjusted Employer’s Annual Federal Tax Return for Agricultural Employees or Claim for Refund, which is available through the Internal Revenue Service.
Employees and Former Employees
In accordance with the Recovery Act, qualifying individuals who lost their employment between September 1, 2008, and May 31, 2010, are entitled to a subsidy of up to 65 percent on COBRA continuation premiums for themselves and their families for a maximum of 15 months.
- Workers who are eligible pay a portion of the premium to their former employers (35 percent)
- You must have been involuntarily terminated from your work between September 1, 2008, and May 31, 2010 in order to be eligible. If you file a single return and your modified adjusted gross income exceeds $125,000 ($250,000 if you file a combined return), the amount of this subsidy is decreased by one-third. In the event that your modified adjusted gross income exceeds $145,000 ($290,000 for joint filers), you will not be eligible to receive the subsidy.
If Your Hours Were Reduced
People who become eligible for COBRA coverage as a consequence of a decrease in hours that occurs between September 1, 2008, and May 31, 2010, followed by an involuntary termination that occurs between March 2, 2010, and May 31, 2010, are also eligible for the COBRA subsidy. If you fall into this group, your subsidy will be accessible to you beginning with the first period of coverage after the involuntary termination of your insurance coverage. Individuals who did not enroll in COBRA coverage following the decrease in hours, or who did enroll but later canceled their coverage, will be given another opportunity to enroll in COBRA coverage.
The administrator of a group health plan or other body is required to provide notification of the new election as soon as possible following the involuntary termination of the group health plan.
Just like in the case of other assistance-eligible persons, the subsidy expires after 15 months, the expiration of COBRA coverage, or the individual’s eligibility for other group health or Medicare coverage, whichever occurs first.
Questions and Answers
Interested in learning more? See our question and answer page for more information. Items that are related:
- Forms and publications
- The American Recovery and Reinvestment Act of 2009: Information Center
- Forms and publications
ARPA Close-up: COBRA Premium Subsidy
Although it’s difficult to believe, the COVID-19 epidemic has been going on for more than a year already. President Biden signed the most recent COVID-19 relief law on March 11, over a year after the first COVID-19 relief bill was enacted by Congress. The new legislation, known as the American Rescue Plan Act (ARPA), included a number of features intended to aid companies and employees as the country slowly returns to normality following the financial crisis. The COBRA premium tax credit will be discussed in detail in this article.
- If you’re reading this, you’re probably acquainted with the phrase COBRA premium subsidy.
- The American Recovery and Reinvestment Act of 2009 (ARRA) made it possible for employees who were involuntarily dismissed to be eligible for health care for up to 15 months at a reduced cost through the use of a COBRA premium subsidy during that time period.
- The cost of the program was refunded to employers through a payroll tax credit or a refund if the cost exceeded their tax due.
- Take a quick leap ahead to 2021, when the ongoing COVID-19 problem has maintained its level of 6.2 percent unemployment in February of that year.
While most states experienced their highest historical unemployment rates in April and May of 2020, during the initial phase of the pandemic in the United States, many workers are still out of work or have to work reduced hours as virus rates have increased in March 2021, according to the Bureau of Labor Statistics.
Through Form 941, the federal government will finance continued coverage while companies claim the reimbursement as a payroll tax credit, just like they did under the Affordable Care Act (ARRA).
This credit may also be advanced, similar to other COVID-19-related tax credits, such as the COVID-19 paid leave tax credits.
When the IRS payroll industry call was held recently, it was verified that the advance credit will be claimed using Form 7200 (Advance Payment of Employer Credits Due to COVID-19), just like the other advanced credits that are already available for paid leave and employee retention (see below).
Who is eligible?
Beginning April 1, the COBRA premium subsidies must be made available to the following individuals:
- You should notify your employees who have been involuntarily terminated or whose work schedules have been reduced to the point where they are no longer eligible for health coverage, as well as individuals who are currently enrolled in COBRA coverage, that they are no longer eligible for health coverage as of April 1.
For two specific categories of people, there is also an unique enrollment time that they can take advantage of.
- People in Group 1 did not initially elect COBRA coverage, but they are still eligible for it if their COBRA periods have not yet expired. The subsidy is available to them for the remaining months of their coverage period, if they qualify. Consider the following scenario: An employee was fired on February 1, 2020, and he or she became eligible for COBRA coverage on March 1, 2020. The COBRA coverage duration of 18 months would come to an end on August 31, 2021. In this case, the employee would be entitled to receive the COBRA premium subsidy from April 1, 2020, through August 31, 2020. It does not extend the coverage duration beyond the current 18-month timeframe. The second group consists of individuals who have elected COBRA coverage but have allowed their coverage to lapse since their coverage term has not yet expired. They may have let their coverage to lapse because they could no longer afford the COBRA premium payments
- However, this is not always the case.
The special enrollment period begins on April 1 and ends 60 days after notification of the special enrollment period is sent to the persons who will be touched by it is delivered to them.
What is the COBRA premium subsidy period?
The COBRA premium subsidy coverage term begins on April 1, 2021, and ends on the following date:
- When the individual becomes eligible for Medicare or coverage under another group health plan
- When the maximum COBRA coverage period (typically 18 months) expires
- Or when the individual turns 65 on September 30, 2021
While eligibility is predicated on a decrease in hours or an involuntary termination, ARPA does not specify what constitutes a reduction in hours or an involuntary termination. But while the COBRA premium subsidy was in effect as a result of ARRA, the Internal Revenue Service released instructions on what constituted a “involuntary termination.” It is possible that we may see similar guidelines in the near future.
What are the new notice requirements for the subsidy?
In accordance with the ARPA COBRA premium subsidy guidelines, three new notification requirements have been added. To advise Assistance Eligible Individuals (AEIs) of the availability of a subsidy and of their enrollment options, which may include the choice to enroll in multiple types of coverage, the first notification must be sent out as soon as possible after they become aware of the subsidy’s availability (if permitted by the plan). Individuals who become eligible to opt COBRA during the period beginning on April 1, 2021 and ending on September 30, 2021 must be supplied with this benefit, according to the law.
It is necessary to send a second fresh notification to persons and their qualifying beneficiaries who had previously elected COBRA coverage but had stopped it before April 1, or who had not elected COBRA but whose coverage period had not yet expired.
A qualifying event that happened prior to October 1, 2019, would generally exclude a person from receiving a subsidy under this program.
It is important to note that the COBRA deadline relief previously announced does not apply to the notices or election periods connected to COBRA premium assistance made available under ARPA.
- Example of General Notice and COBRA Continuation Coverage Election Notification Model Notice in Connection with an Extended Election Period
- Model Alternative Notice (coverage subject to state continuing restrictions)
- Model Notice in Connection with an Extended Election Period Expiration of Premium Assistance Notice
- Model Expiration of Premium Assistance Notice
What about state mini-COBRA laws?
It should be noted that the ARPA COBRA premium subsidy provision applies to state mini-COBRA statutes that mandate continued coverage in the case of certain qualifying occurrences. The majority of the time, these state COBRA regulations apply to smaller firms, defined as those with less than 20 workers. State mini-COBRA statutes differ from the federal COBRA law in several important ways. Corporations with operations in different states must be mindful that the standards for state mini-COBRA will differ.
It is possible to be eligible for state mini-COBRA for as short as 63 days in Oklahoma or as long as 36 months in New York, depending on the state.
Alaska, Idaho, Indiana, Michigan, Montana, and Nevada are the only states that do not have legislation requiring any type of continuation of coverage (repealed).
However, while the states of Alabama and Hawaii do not have a mini-COBRA statute in place, they do mandate continued coverage in certain instances.
What’s on the horizon?
Thomson Reuters anticipates the following:
- A comparable set of IRS guidelines to those that were provided for the COBRA premium subsidy under ARRA
- In order to facilitate claiming the COBRA premium subsidy credit for the new subsidy period, the Internal Revenue Service (IRS) will amend Form 941 once again. In a recent announcement, the Internal Revenue Service stated that a reform to Form 7200 is in the works that will allow businesses to claim an advance on the subsidy when the cost of premiums exceeds the amount of payroll tax owed. State modifications to current mini-COBRA statutes are a possibility.
Please consider reaching out to a knowledgeable salesperson atThomson Reuters Checkpointto learn more about how a payroll subscription can help your business.
- FAQs about COBRA Premium Assistance under the American Rescue Plan Act of 2021
- COBRA Premium Assistance under the American Rescue Plan Act of 2021
- Provisions for COBRA premium assistance under the American Rescue Plan Act of 2021 are summarized below.
The ARRA’s COBRA Health Insurance Subsidy
It was signed into law by President Barack Obama in 2009. The American Recovery and Reinvestment Act of 2009 (ARRA) provides eligible individuals with the opportunity to pay reduced premiums and additional election opportunities for health insurance coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985. (COBRA). According to the gist of what is being referred to as the COBRA subsidy, qualified individuals will pay just 35% of the COBRA cost, with the other 65% being refunded to the health insurance coverage provider (usually an employer or a health insurance plan) through a tax credit.
- While the rules of the Affordable Care Act pertaining to COBRA are somewhat ambiguous, both the Internal Revenue Service and the United States Department of Labor are working feverishly to give the essential health insurance coverage guidelines to employers and plans.
- So, what exactly is COBRA, and what does it have to do with health insurance coverage?
- In most cases, the dismissed employee is responsible for paying the employer or the plan 102 percent of the actual premium amount.
- As a result, only a small percentage of terminated employees have the financial capacity to opt COBRA and maintain their health care coverage after their employment ends.
- These laws are referred to as Mini-COBRA laws.
- Which type of health insurance subsidy is provided by the ARRA and how much does it cost?
As defined in the COBRA continuation health coverage regulations, a “assistance eligible individual” refers to an employee or a member of his or her family who meets all of the following criteria: 1) is eligible for COBRA continuation health coverage at any time between September 1, 2008 and December 31, 2009; 2) elects COBRA coverage; and 3) is eligible for COBRA as a result of the employee’s involuntary termination between September 1, 2008 and December 31, 2009.
Other group health insurance coverage (such as a spouse’s health insurance plan) and Medicare do not qualify for the premium discount.
Anyone who meets the eligibility requirements and pays the 35 percent COBRA health insurance payment is considered to have paid the whole COBRA premium.
Credits that are more than the amount of employment taxes payable will be repaid to the employer or health insurance plan that received the credit.
A “phase out” of the COBRA health subsidy applies to those earning between $125,000 and $145,000 individually (and between $250,000 and $290,000 for joint filers).COBRA Health Subsidy Special Election COBRA Health Subsidy Special Election Special COBRA elections are available to individuals who were involuntarily terminated from their jobs between September 1, 2008 and February 16, 2009 and who did not elect COBRA when it was first offered, or who did elect COBRA but are no longer enrolled (for example, because they were unable to continue paying the health insurance premium) are eligible to participate in a special COBRA election.
- Beginning on February 17, 2009, and ending 60 days after the proposal delivers the appropriate notice, a special election period will be held.
- The individual’s 18-month COBRA health insurance coverage begins to accrue from the day he or she would have otherwise been qualified for coverage.
- It is mandatory for employers and plan administrators to send notification to employees who had a COBRA qualifying event during the period September 1, 2008, through December 31, 2009.
- Soon, the United States Department of Labor will be required to release a new notice to comply with this obligation, according to current expectations.
- As part of the Health Insurance Coverage Transition RuleARRA, qualifying workers can be charged the entire COBRA health insurance premium for up to two billing cycles after February 17, 2009.
- A person who has received an overpayment from their employer or health insurance plan is obligated to get a reimbursement or credit for the overpayment in subsequent billing periods.
- After what date does the COBRA health insurance subsidy come to an end?
- In the case of plans that charge for COBRA coverage on a calendar month basis, the premium reduction will take effect on March 1, 2009.
- No of whether or whether the individual actually enrolls in the health insurance plan, the penalty is still applicable.
- There are many more specifics and complexities to the new law that are currently being worked out by the many government agencies and departments involved.
Companies should begin establishing internal processes around the new rule as soon as possible, identifying the persons who will be affected and updating their recordkeeping systems as necessary in the meanwhile.
The COBRA premium subsidy under the American Recovery and Reinvestment Act of 2009 – What Employers and Plan Administrators need to know.
As a result of the American Recovery and Reinvestment Act of 2009 (“ARRA”), which was signed into law by President Barack Obama on February 17, 2009, a federal subsidy of the premiums payable by certain terminated employees for continuation coverage provided under employer-sponsored group health plans was established in accordance with the requirements of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (also known as “COBRA”).
- The premium subsidies and new COBRA notification obligations that apply to employers and plan administrators as a result of this law are outlined in the following section.
- In exchange for the subsidy, employers pay 65 percent of the COBRA premiums that would otherwise be payable by “assistance eligible individuals” (as defined below).
- In general, the COBRA premium subsidy will be offered to help eligible persons for a maximum of nine months and will apply to premiums paid for periods of coverage that begin on or after March 1, 2009.
- Once an assistance-eligible individual becomes eligible for coverage under another group health plan or Medicare, or otherwise ceases to be eligible for COBRA continuing coverage, the COBRA premium subsidy is no longer accessible.
- The subsidy does not apply to plans that exclusively cover dentistry, vision, counseling or referral services, or health care flexible spending accounts.
- Those persons who did not have a COBRA election in place on the day of ARRA’s implementation, but who would be aid eligible individuals if such an election had been in effect, are eligible for help during a special election period (the “Special Election Group”).
- Therefore, the Special Election Group will have an additional 60-day window in which to elect COBRA continuing coverage, with the first period of coverage commencing on or after February 17, 2009, and the coverage being effective on or after February 17, 2009.
- Individuals and couples with yearly adjusted gross incomes of $125,000 and $250,000, respectively, will see the support phased away over the next few years.
- Individuals who get the subsidy throughout the course of the year and whose income exceeds the aforementioned restrictions are compelled to reimburse the subsidy to the government.
The following information must be included in this notification:
- A description of the eligible beneficiary’s eligibility for the premium subsidy, as well as any restrictions on the qualified beneficiary’s eligibility for the premium subsidy
- The paperwork that must be completed in order to determine eligibility for the premium subsidy
- In order to contact the plan administrator and any other person who may have relevant information in connection with the premium subsidy, you must provide the following information: your name, address, and telephone number. Description of the special election period accessible to persons who did not have a COBRA election in force on the day of ARRA’s implementation but who would be assistance eligible individuals if such an election had been in effect
- And Section 6720C of the Internal Revenue Code describes the qualified beneficiary’s duty to inform the plan if he or she becomes eligible for coverage under another group health plan or Medicare, as well as the penalties imposed for failing to do so. If the employer chooses to give them, an explanation of the alternative COBRA coverage choices will be provided.
The Department of Labor is required to issue a sample notice within 30 days after ARRA’s enactment for the purpose of complying with the new notice obligation under the Act. Employers and plan administrators should take the following steps. In light of the impending implementation of COBRA as revised by ARRA on March 1, 2009, the following is a list of action items that employers and plan administrators may find useful in preparing for their new duties under the law.
- Identify workers/former employees (including their eligible spouses and/or dependents) who were terminated involuntarily on or after September 1, 2008, and who are entitled to elect COBRA continuation coverage
- And COBRA messages and alerts that have already been sent out should be reviewed and updated. Employers and plan administrators should concentrate their efforts on creating a fresh notice that meets the conditions stated above and delivering it to the Special Election Group. In order to track and facilitate the COBRA premium subsidy payments, existing payroll systems and processes should be reviewed and revised as necessary. Put in place systems and procedures within the employer’s human resources department and payroll system to collect the information that will be required to accompany the employer’s tax credit application
- Examine the impact that the COBRA premium subsidy will have on current agreements in which the employer pays for all or part (but not all) of a former employee’s COBRA payments. Whenever possible, work with third-party COBRA administrators to clearly establish the duties and obligations of each party in light of the increased responsibilities under COBRA.
Alternatively, you can reach Martin J. Smith at (213) 617-5490 or Michael Chan at (213) 617-5537 if you have any queries about this information. Any tax advice contained herein was not intended or written by the author to be used for the purpose of avoiding any tax penalties that may be imposed on any individual, and it cannot be used for that purpose by any recipient. It is understood that the author of this document does not place any restrictions on the disclosure of the tax treatment or tax structure of any transaction to the recipient of this document.
Upon termination of employment, employers have the option of allowing their eligible employees to choose a different COBRA health coverage option than the one in which they had been enrolled at the time of termination of employment.
This other group health plan coverage must be an option offered by the employer to active employees when the election is made, and the premium for such coverage cannot be more expensive than the premium for coverage in which the individual was enrolled at the time of the qualifying event.
Changes to COBRA in the ARRA
The COBRA/state continuation coverage premium subsidy is defined as follows: When the Affordable Care Act was passed, it established a temporary premium subsidy for some individuals (known as “assistance eligible persons,” or AEIs) who were qualified for COBRA or analogous state continuation coverage. The federal government will reimburse 65 percent of the part of the COBRA or state continuation coverage costs that these AEIs are required to pay under the Affordable Care Act. Among other things, the qualifying event that made the AEI eligible for COBRA or state continuation coverage must have occurred between September 1, 2008, and December 31, 2009.
AEIs must also be COBRA “qualified beneficiaries,” which means that domestic partners are unable to be AEIs.
What exactly qualifies as “involuntary termination?” According to IRS Notice 2009-27, the following are examples of “involuntary termination” of employment (for additional information and examples, please consult the IRS Notice):
- Employee is fired (but keep in mind that if the termination is due to gross misconduct, the termination does not qualify as a qualifying event, and the employee and any covered dependents are ineligible for COBRA)
- Employee is laid off (but keep in mind that if the termination is due to gross misconduct, the termination does not qualify as a qualifying event, and the employee and any covered dependents are ineligible for COBRA)
- Employee is laid off (but keep in mind that if the termination is due to gross An employee has been terminated
- Employee is placed on furlough (has his or her hours reduced to zero)
- Employee resigns, although the employee is aware that if the employee does not resign, the company will terminate the employee’s job. Employee resigns because the employer necessitates a significant shift in the geographic location of the employee’s place of work. In this case, the employee leaves because of an employer-imposed reduction in work hours, which results in a materially unfavorable alteration in his or her employment relationship. If an employee’s employment contract was not renewed by the employer at the time the contract expired, and the employee was willing and able to execute a new contract with terms and conditions similar to those in the expiring contract and continue providing the services, the employee may be entitled to compensation. Employee’s employment is terminated because of illness or disability-related absence from work. When an employee is dismissed for reason (however it should be noted that if the termination is for egregious misbehavior, the termination does not constitute as a qualifying event for COBRA purposes, and the employee and any covered dependents are therefore ineligible for COBRA)
It is not deemed “involuntary termination” of employment if one of the following conditions are met:
- Employee willingly leaves his or her position
- An employee retires (except in cases where, absent retirement, the employer would have terminated the employee’s services and the employee was aware that he or she would be terminated)
- An employee is terminated involuntarily (except in cases where, absent retirement, the employer would have terminated the employee’s services and the employee was unaware that he or she would be terminated)
- An employee is terminated involuntarily (except in cases where the employee is terminated involuntarily). In the case of an employee who is absent from work because of illness or disability, Death
- The dependent is over the legal age of majority (has achieved the legal age of majority).
On what date does the subsidy become effective? In the case of plans with monthly premiums, this discount will become effective no early than March 1, 2009. What is the duration of the subsidy? With respect to AEIs, the subsidy will continue until the occurrence of the first of the following: 1. It has been nine months since the subsidy program began. 2. The maximum period of continuation coverage necessary under COBRA or analogous state continuation coverage comes to an end, unless extended by the employer.
Is it possible to utilize the subsidy to pay for dental and vision continuing coverage?
When it comes to chiropractic, acupuncture, and other complementary therapies, can you use the subsidy?
Client Alert: The ARPA Brings COBRA Subsidies Back! – FraserTrebilcock Blog
The subsidy is scheduled to begin in January. In the case of plans with monthly premiums, this rebate becomes effective no early than March 1, 2009. Can you tell me how long the subsidy will last? The subsidy will be available to AEIs until the first of the following events occurs: 1. The subsidy has been in effect for nine months. 2. The maximum duration of continuing coverage necessary under COBRA or an equivalent state continuation coverage program comes to an end, unless otherwise specified.
Are dental and vision continuing coverage eligible for usage with the subsidy?
Can chiropractic, acupuncture, or other additional therapies be reimbursed with the subsidy money?
- The switch is permitted by the employer
- The premium for such different coverage does not exceed the premium for the coverage in which the individual was enrolled at the time of the qualifying event
- The different coverage is also made available to similarly situated active employees of the employer
- And the different coverage does not only include excepted benefits, a qualified small employer HRA, or an FSA
- The switch is permitted by the employer
The 100 percent subsidy, on the other hand, is not accessible to AEIs for the months commencing on or after the earlier of the following dates:
- The 100 percent subsidy, on the other hand, is not accessible to AEIs for the months commencing on or after the earlier of the following dates: 1 January to 31 December.
Employees who are no longer eligible for subsidies because they are covered by other group health plans or Medicare are required to tell their employer’s group health plan of this fact.
Assistance Eligible Those (AEIs)New Election RightsAEIs are defined as individuals who, from April 1, 2019, through September 30, 2021, are COBRA qualifying beneficiaries and who meet one of the following criteria:
- Are eligible for COBRA coverage as a result of an involuntary termination (for reasons other than egregious misbehavior) or a decrease in hours
- And, if eligible, choose to enroll in such coverage.
The ARPA, on the other hand, provides that individuals who do not have a COBRA election in effect as of April 1, 2021 (but who could have had they elected COBRA or not dropped COBRA coverage early) may elect COBRA at any time beginning April 1, 2021 and ending 60 days after receiving notice that they are permitted to do so. COBRA will commence on or after April 1, 2021 for these new elections, and it will not be able to be extended beyond the initial date of COBRA, regardless of whether it was originally elected or not canceled.
- The availability of premium assistance, if eligible
- The option to enroll in different coverage (if the employer permits)
- The forms necessary to establish eligibility for the premium assistance
- The name, address, and phone number to contact the plan administrator (or TPA, etc.) regarding the premium assistance
- A description of the extended election period
- And a description of the qualified beneficiary’s obligation to notify the plan of their eligibility for other benefits, if any. a description of the extended election period.
This can be achieved by modifying the present notifications or by attaching a new document with the notices that describes the aforementioned information and procedures. After the ARPA’s enactment, the Department of Labor is required to produce model notifications within 30 days of the act’s passage. Notice of Reopening of Election Rights Companies who had previously failed to elect COBRA or have terminated it but are now eligible to do so under the expanded election period must send notification of their intent to elect within 60 days of April 1, 2021, unless they have already done so.
- Notice must be given between 45 days and 15 days before the expiration date, with the last day of notice being 15 days before the expiration date.
- Once again, the Department of Labor will provide example notifications, but this time within 45 days of the ARPA’s implementation date.
- As you may be aware, failing to deliver correct and timely COBRA letters can result in significant financial penalties, making compliance essential.
- These tax credits are computed on a quarterly basis, and the total amount of credits awarded may not exceed the total amount of Code Section 3111(b) taxes imposed on wages paid for employment of all of the employer’s employees combined.
- In addition, credits may be transferred ahead of time.
- In order to secure legal and tax compliance, it will be necessary to coordinate with third-party administrators, consultants, and attorneys, among others.
- As you are well aware, the law and guidelines in this field are changing at a breakneck pace.
Fraser Trebilcock is dedicated to providing you with useful information.
We have formed a reaction team to deal with the quickly evolving COVID-19 scenario, as well as the ensuing law and guidelines, and we will continue to update this page with any new developments.
Please feel free to contact your Fraser Trebilcock attorney if you have any queries in the meanwhile.
Latchana is a health and welfare benefits specialist who specializes in employee benefits.
For additional information on this reminder or any other concerns, please contact Elatchana at 517.377.0826 or [email protected]
The law firm of Fraser Trebilcock is represented by Brian T. Gallagher, an attorney who specializes in ERISA, employee benefits, deferred and executive compensation. Call (517) 377-0886 or email [email protected] to reach out to him.
Biden Signs Stimulus Bill with 100% COBRA Subsidy Through September
Model Notifications Have Been Issued A example notification and a series of frequently asked questions (FAQs) were published on April 7, 2021, by the United States Department of Labor to assist companies in complying with the federal COBRA premium subsidies established under the American Rescue Plan Act. For further information, see theSHRM Online article The Department of Labor Issues COBRA Subsidy Guidance and Model Notices According to the American Rescue Plan Act (ARPA), which President Joe Biden signed into law on March 11, the federal government will pay 100 percent of COBRA insurance premiums for eligible employees who have lost their jobs and for their covered relatives through September, allowing them to remain on their employer-sponsored health plan while on unemployment benefits.
- By passing the bill, the Senate enhanced the government’s subsidy to 100 percent of COBRA premiums for laid-off workers and insured family from April 1 through September 30, 2021, an increase from an 85 percent subsidy in the House measure.
- The credit against their Medicare FICA payroll taxes is available to both fully insured and self-insured group health plans subject to federal COBRA.
- When companies complete Form 941, which is their quarterly income tax return, “if the credit exceeds the amount of payroll taxes payable, the credit will be refunded to the employer,” Bakich explained.
- Only assistance eligible persons (AEIs) are eligible for a subsidy, and this excludes employees who voluntarily terminate their employment for personal reasons.
- After the subsidy period has expired, AEIs are required to notify their group health plan if they become eligible for other ACA-compliant coverage.
- If they do not notify their group health plan, the subsidy will expire after the COBRA beneficiary has failed to enroll in the alternative coverage for which they have become eligible.
- Employers may force terminated employees who opt to maintain their employer-sponsored health plan to pay for COBRA coverage for a period of up to 18 months after they have been terminated.
- When it comes to COBRA coverage, certain states apply their own standards in specific instances.
- Many newly unemployed employees, on the other hand, are unable to afford this expense.
Who is eligible to get tax credits? Ashley Gillihan, a lawyer in the Atlanta office of law firm Alston,Bird, stated during a virtual conference hosted by the Employers Council on Flexible Compensation that it seems tax credits will be applied in the following ways:
- Employers who have a group health plan that is subject to federal COBRA are eligible to receive tax credits, regardless of whether the plan is fully insured or self-insured. The employer then pays the insurer or third party administrator (TPA) to subsidize coverage for AEIs who choose COBRA coverage until September 2021.
- The employer obtains the tax credit and pays the insurer/TPA to subsidize coverage in the event that a self-funded plan is not subject to federal COBRA but the state needs continuation coverage.
- It is the insurer who receives the tax credits and who is responsible for delivering AEIs’ continuation coverage at no cost when a fully insured plan is not subject to federal COBRA but the state mandates continuation coverage.
As long as a fully insured plan is not subject to federal COBRA but the state mandates continuation coverage, the insurer is eligible for tax credits and is responsible for providing no-cost continuation coverage to AEIs under the plan.
- The paperwork that must be completed in order to determine eligibility for COBRA premium assistance
- The plan administrator’s name, address, and telephone number, as well as the name, address, and telephone number of any other individual who may have relevant information in connection with premium assistance
- A description of the legislation’s provision for an extended election term
- If the employer chooses to provide the opportunity to enroll in multiple types of coverage, a description of that choice is provided.
Model notifications must be published by the Department of Labor within 30 days of the bill’s enactment, according to the ARPA. In order to send out letters and notify individuals about the subsidies, employers must get started immediately, Bakich added. Plans must also include the following elements:
- When eligible people’ periods of premium support are about to expire, send them a separate expiry notification
- Persons who’s subsidy will expire before September 30, 2021, but this notice will not be necessary if the individual’s subsidy is expiring as a result of the individual’s qualifying for alternative health insurance
Additionally, plan sponsors of group health plans should consider whether they will allow individuals to enroll in a different plan option than the one in which they were enrolled when their coverage was terminated, provided that the new plan is not more expensive than the old one, according to Bakich. It was stated that “plan sponsors would have the option to permit this and would be required to indicate the availability of that choice in the notices they send out.” Klimpl anticipates that “evidence of these special notices will become low-hanging fruit for ERISA compliance investigations conducted by the Department of Labor’s Employee Benefits Security Administration over the next couple of years,” according to the report.
Extension of the COBRA Pandemic-Relief Deadline Has an Impact While responding to legislative developments pertaining to COBRA, employers should be cognizant of recent regulatory guidance pertaining to COBRA deadlines for plan administrators and terminated workers.
“Those folks who are eligible for delays will also be covered by the COBRA subsidy,” she explained, provided they fulfill the eligibility standards.
Employers should be mindful of administrative challenges connected to contacting employees who may have had a COBRA event in the previous year, as well as how to resolve circumstances in which the employer may have subsidized a portion of the COBRA premium, according to Bakich.
For the most part, she explained, this will involve “everyone who was eligible for—or might have been eligible for—COBRA as far back as November 2019, since their 18 months of coverage would run through April 2021.” Steps to Take Next CBIZ, a human resources consulting business, advises employers to take the following steps:
- Make a list of all assistance-eligible persons who may be eligible to elect COBRA coverage as a result of involuntary terminations or reductions in hours.
- This includes both individuals who are now enrolled in COBRA and those who would have been enrolled in COBRA until September 2021 if COBRA had not been denied or discontinued.
- Prepare to hunt down assistance-eligible individuals who choose to take advantage of the COBRA subsidy.
- Organize with payroll service providers to obtain the refundable tax credit.
Collaboration with third-party administrators Buckey made the observation that “Because most businesses currently outsource COBRA administration, it would be the administrator’s responsibility to manage election modifications, notification requirements, and invoicing for COBRA participants. ” Because most plans are quiet on COBRA election changes, she believes that no plan amendment will be necessary to implement the plan option change provision. The sample COBRA notifications, which will be available soon, “should lessen the effort of modifying current notices,” she says.
Employers may be able to outsource administration of the subsidy to their COBRA third party administrators to some extent, according to Klimpl, but employers should be cautious about doing so “Employers, in the end, are accountable for regulatory compliance.
COBRA coverage or government-subsidized health insurance plans?
For those earning more than 400 percent of the federal poverty level, subsidies—technically, advanceable tax credits—will gradually decrease as income increases, limiting the cost of ACA plan premium contributions for silver (midlevel) health plans to no more than 8.5 percent of an individual or family’s income under the new law.
After October, those who have not yet exhausted their COBRA coverage may want to compare the cost of maintaining health insurance under COBRA with the cost of purchasing a health insurance plan through the Affordable Care Act marketplace, particularly if they are now eligible for enhanced subsidies under the Affordable Care Act.
The following is a related SHRM resource: Summary: The American Rescue Plan Act, according to SHRM Government Affairs, will take effect in March 2021.
The Department of Labor Issues Guidelines for COBRA Subsidization and Model Notices, SHRM Online, April 2021.
In March 2021, SHRM Online published an article titled “Agencies Revise—and Complicate—COBRA Deadline Extensions.” Only SHRM members have access to this section.
SHRM HR Q As:What are the qualifying events under COBRA?SHRM HR Q As:How long does COBRA continuation coverage last?SHRM HR Q As:What are the qualifying events under COBRA? SHRM’s how-to manual: COBRA Administration Procedures