Q: Has the Department of Labor (DOL) issued guidance on the COBRA premium subsidy?

A: On March 25, we reported on the 100% federally funded COBRA premium subsidy included in the American Rescue Plan Act (ARPA), noting the need for additional guidance on a number of issues. See “COVID-19 Resource Guide for Human Resources Professionals: 100% Federally Funded COBRA is Almost Here — What You Need to Know.” In response to questions from stakeholders, the Department of Labor (DOL) issued FAQs on April 7, providing much needed guidance on the COBRA premium subsidy. While the FAQs provide employers with some clarity on the implementation and administration of the COBRA premium subsidy, additional guidance is still needed.

The ARPA COBRA premium subsidy provisions require employers and insurers to provide “assistance eligible individuals” (AEIs) with a 100% subsidy for premiums otherwise owed for COBRA coverage during the period from April 1, 2021 to September 30, 2021 (Subsidy Period). An AEI is a qualified beneficiary whose COBRA qualifying event is an involuntary termination of employment or reduction of hours, who is not otherwise eligible for Medicare or other group health plan coverage, and who actually elects COBRA coverage. The FAQs confirm the following aspects of the ARPA COBRA premium subsidy available to AEIs:

  • The COBRA premium subsidy applies to group health plans required to provide continued coverage under state mini-COBRA laws.
  • AEIs do not include individuals terminated for gross misconduct or individuals eligible for group health coverage through Medicare or a new employer’s or spouse’s plan (other than a plan providing only excepted benefits, a qualified small employer health reimbursement arrangement, or a health flexible spending arrangement).
  • Prior agency guidance extending the deadline for electing COBRA coverage for up to one year during the COVID-19 “Outbreak Period” does not apply to the additional 60-day COBRA election opportunity available to potential AEIs not currently receiving COBRA coverage. This means that the additional election period runs for 60 days, and 60 days only, after the additional election opportunity notice is provided. Potential AEIs must elect COBRA continuation coverage within this 60-day election period or lose their right to elect subsidized COBRA continuation coverage.
  • If a potential AEI’s qualifying event occurred prior to April 1, 2021, the election period for subsidized COBRA continuation coverage does not eliminate the AEI’s right to elect COBRA continuation coverage starting from the prior qualifying event, including under the extended timeframe allowed during the COVID-19 Outbreak Period.
  • Potential AEIs can use the additional election period to change from individual market health insurance coverage to subsidized COBRA continuation coverage.
  • Potential AEIs have flexibility in selecting the date COBRA coverage becomes effective. Specifically, potential AEIs can begin their coverage prospectively from the date of their election or, if a potential AEI’s qualifying event occurred prior to April 1, 2021, the potential AEI can begin COBRA coverage on April 1, 2021, even if he/she receives an election notice and makes that election after April 1, 2021.
  • The additional election opportunity does not extend the duration of COBRA coverage — a potential AEI who elects COBRA coverage during the additional election opportunity is entitled to COBRA coverage for up to 18 months following the date of the qualifying event.
  • Enrollment in subsidized COBRA coverage will make AEIs ineligible for any premium tax credit (or advance payments of the premium tax credit) for Affordable Care Act Marketplace (Marketplace) coverage otherwise available during that period.
  • When the Subsidy Period ends, AEIs may qualify for a special enrollment period to enroll in coverage through the Marketplace or individual market health insurance coverage outside of the Marketplace.
  • Employers failing to satisfy the COBRA requirements for the COBRA premium subsidy may be subject to excise taxes of up to $100 per qualified beneficiary, but not more than $200 per family, for each day that the employer is in violation of the COBRA requirements.

To further assist employers, the DOL created the “COBRA Premium Subsidy” web page, which centralizes information about the COBRA premium subsidy and includes model notices. Unless specifically modified by the ARPA, the existing requirements for the time and manner of delivery of COBRA notices continue to apply. However, prior agency guidance extending the deadline for providing COBRA notices and making COBRA elections for up to one year during the COVID-19 Outbreak Period does not apply to the notices or election periods related to the ARPA COBRA premium subsidy.

Despite the welcomed additional guidance and model notices, employers still remain eager for clarity on open substantive questions, such as whether termination for good reason is considered an involuntary termination eligible for the subsidy, whether already existing subsidized COBRA obligations (e.g., pursuant to separation agreements) are tolled during the Subsidy Period, and whether the subsidy is available to AEIs whose maximum COBRA coverage period overlaps with the Subsidy Period as a result of a second qualifying event. In addition, the IRS has yet to issue guidance with details on how to claim the federal tax credit used to reimburse the cost of these COBRA subsidies. We hope to receive additional guidance from the federal agencies on these and other outstanding questions soon.

If you have any questions or require assistance, please contact any member of the Troutman Pepper Employee Benefits and Executive Compensation Practice Group or the COVID-19 Response Task Force. We are here to help you in any way that we can. This alert reflects guidance as of April 15, 2021.

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Photo of Lynne Wakefield Lynne Wakefield

Lynne regularly assists clients with issues relating to employer-sponsored health and welfare benefits, including the design, implementation, and administration of group health plans, cafeteria plans, health savings accounts (HSAs), health reimbursement arrangements (HRAs), wellness programs, and retiree medical and private exchange coverage.

Photo of Emily D. Zimmer Emily D. Zimmer

Emily counsels clients on a wide range of employee benefit and executive compensation issues, including issues related to corporate mergers and acquisitions. She routinely advises on the design, implementation, and administration of qualified and non-qualified retirement plans and welfare benefit programs, including wellness…

Emily counsels clients on a wide range of employee benefit and executive compensation issues, including issues related to corporate mergers and acquisitions. She routinely advises on the design, implementation, and administration of qualified and non-qualified retirement plans and welfare benefit programs, including wellness programs, health care accounts such as HRAs, Health FSAs, and HSAs, adoption reimbursement programs, and educational assistance programs.

Photo of Lydia Parker Lydia Parker

Lydia is a partner in the Employee Benefits + Executive Compensation Practice Group. She assists clients with the design and implementation of employee benefits plans, and regularly advises clients on the wide variety of compliance issues that arise in the administration of those…

Lydia is a partner in the Employee Benefits + Executive Compensation Practice Group. She assists clients with the design and implementation of employee benefits plans, and regularly advises clients on the wide variety of compliance issues that arise in the administration of those plans. Lydia has broad experience with both tax-qualified retirement plans, such as 401(k), 403(b) and defined benefit plans, and nonqualified plans. She has worked extensively with clients on compliance issues related to both self-insured and fully-insured health and welfare benefits plans, including group health plans, severance plans, life insurance plans, and disability plans. Her experience with health and welfare benefits plans includes advising on ACA, COBRA, HIPAA, ERISA, and Internal Revenue Code compliance. Lydia also assists clients with the benefits and compensation aspects of mergers and acquisitions, the negotiation of administrative services agreements and other vendor contracts, governance and fiduciary issues, and the administration of claims and appeals.