Following our April 2021 webinar "COBRA Premium Assistance: Your Questions Answered" on the new COBRA subsidies under the American Rescue Plan Act, we received a number of questions from the webinar attendees. Below is a compilation of the questions we received and the answers to those questions. These answers take into account the guidance in Notice 2021-31 issued by Treasury and the Internal Revenue Service. Where appropriate we have added references to the applicable Q&A from Notice 2021-31 and the FAQs issued by the Employee Benefit Security Administration (EBSA).
COBRA SUBSIDY QUESTIONS
If a child was removed from his father’s small group plan because he turned 26-years-old (for example, on February 28, 2021), can this dependent take advantage of the COBRA subsidy? This person did go onto Covered California effective March 1st. No. The subsidies are only for qualified beneficiaries who have had involuntary terminations of employment. Losing coverage due to aging out is not an event that will qualify an individual for COBRA premium assistance. See IRS Q&A-8.
If a qualified beneficiary has enrolled in coverage from Covered California, can they terminate that coverage and take advantage of the COBRA subsidy? Yes, if the qualified beneficiary is otherwise eligible for the subsidy, that is, if he or she qualifies as an assistance eligible individual (AEI). However, an individual is not eligible for a premium tax credit to help pay for exchange-based coverage during any month that the individual is enrolled in COBRA coverage. An individual who elects COBRA coverage and who is enrolled in exchange-based coverage and is claiming advance premium tax credits, may be required to repay the premium tax credits for the overlap months. See IRS Q&A-13.
If an employee terminates employment now, can that person take advantage of the COBRA subsidy? Yes, an employee terminating employment now is potentially eligible for a COBRA subsidy. The individual must, however, be an AEI.
If an AEI enrolls in individual coverage, will the AEI still be eligible for COBRA premium assistance? Yes, individual coverage will not disqualify an AEI from being eligible for the COBRA subsidy. The AEI, however, must enroll in COBRA coverage.
I thought I read that if an employee is involuntarily terminated after 4/1/2021, they would still be eligible through 9/30/2021 for COBRA premium assistance. If an employee is involuntarily terminated after 4/1/2021 and the employee is eligible for COBRA coverage during some or all of the subsidy period from 4/1/2021 through 9/30/2021, that individual is eligible for the COBRA subsidy so long as the termination of employment was not by reason of gross misconduct.
If employees have agreed upon contract end dates, are they considered involuntary terms? The determination of whether a termination is involuntary is based on the facts and circumstances. Even if an employee agrees to the termination, the facts and circumstances might indicate that the employee was willing and able to continue performing services, so that absent the “voluntary” termination, the employer would have terminated the employee’s services, and that employee had knowledge that the employee would be terminated. If so, the termination would be considered involuntary. See IRS Q&A-34.
Please confirm that the dependents of a deceased employee are not eligible for the COBRA subsidy. Dependents of a deceased employee who became qualified beneficiaries on account of the death of the covered employee would not be eligible for COBRA premium assistance. The death of an employee is not a reduction in hours or an involuntary termination of employment; a loss of coverage due to the employee's death in this situation would not result in the employee's dependents being potential AEIs. See IRS Q&A-33. However, the death of an employee who has had a reduction in hours or an involuntary termination of employment does not end the eligibility for COBRA premium assistance for any qualified beneficiary spouse and dependent children. See IRS Q&A-50.
Please confirm that a divorced spouse is not eligible for the COBRA subsidy. Qualifying events other than a reduction in hours or an involuntary termination of employment, such as divorce is not an event qualifying an individual for COBRA premium assistance. IRS Q&A-8.
What if employer is not subject to ERISA -- like a municipality, or a government agency? COBRA premium assistance applies to plans sponsored by state or local governments subject to the continuation provisions under the Public Health Services Act. The premium assistance is also available for group health insurance required under state mini-COBRA laws. See EBSA Q&A-2.
If employment ended for someone who exhausted leave benefits are they eligible for the subsidy? The answer depends on the facts and circumstances of each individual case. If the facts and circumstances indicate that the employee was willing and able to continue performing services, so that, absent a voluntary termination, the employer would have terminated the employee, and the employee had knowledge that the employee would be terminated, then the termination is involuntary. See IRS Q&A-24. Note that an involuntary termination could occur if an employer takes action to end an employee’s employment when the employee is on leave due to illness or injury, provided there is a reasonable expectation that the employee will return to work after the employee has recovered from the illness or injury. See IRS Q&A-24.
So, it sounds like a person who was on COBRA prior to 4/1/2021 would not be eligible for the subsidy No, that is not correct. If a qualified beneficiary was enrolled in COBRA coverage prior to 4/1/2021, that individual could still qualify as an AEI. See IRS Q&A-1.
We had a previous employee who only elected COBRA for his spouse and not himself. He now has coverage through his current employer, but his spouse is still on our COBRA. Does she qualify for this subsidy? As long as the covered employee’s qualifying event was a reduction in hours or involuntary termination of employment and the spouse is still on COBRA during the subsidy period (4/1/2021 through 9/30/2021), then the spouse might qualify for the subsidy. However, if the spouse is eligible for group health coverage offered by the employee’s new employer, that might disqualify the spouse.
What is the penalty if an employer fails to send out the COBRA subsidy notices? Employers may be subject to an excise tax under the Internal Revenue Code for failing to satisfy COBRA requirements. The tax could be as much as $100 per qualified beneficiary (but not more than $200 per family) for each day that the employer fails to comply with the COBRA rules. See EBSA Q&A-10.
If an employee quits because of insufficient COVID protections (the employer wants the employee to come back to the office, but the employee doesn’t feel safe) – is the employee eligible for the subsidy? An employee’s termination of employment due to general concerns about workplace safety is not treated as an involuntary termination. However, where the employee can show that the employer’s actions resulted in a material negative change in the employment relationship analogous to a constructive discharge, such a termination would be treated as involuntary. See IRS Q&A-30.
What if an employer cannot afford to remit premium payments and wait for the credit? In the case of an insured plan subject to Federal COBRA, if the employer and the insurer have an agreement that the insurer will collect COBRA premiums directly from qualified beneficiaries, the insurer is required to treat an AEI as having paid the full premium. Notwithstanding such an agreement, the employer is still required to pay the insurer the premium for the months the COBRA subsidy is effective. See IRS Q&A-60. We know of no hardship exception to the requirement that employers subject to Federal COBRA continue to provide COBRA coverage at no cost to qualified beneficiaries during the subsidy period.
Are full-time employees who voluntarily reduce their hours to part-time potentially eligible for the subsidy? Yes, an employee’s reduction in hours (whether voluntary or involuntary) would cause a qualified beneficiary to be a potential AEI. See IRS Q&A-21.
Is the COBRA subsidy available only during the subsidy period (from 4/1/2021 through 9/30/2021)? Yes, COBRA premium assistance is available only during the subsidy period.
If a former employee elects COBRA coverage and is entitled to a subsidy under the ARPA, what happens when the subsidy ends? Will COBRA coverage be terminated? Or will employer or carrier start billing the enrollee? Once subsidized COBRA ends (for example, with the period of coverage including 9/30/2021), regular COBRA coverage automatically continues. The payment for the first period of coverage after 9/30/2021 is timely paid according to the terms of the plan or coverage taking into account the extended timeframes for making COBRA premiums under the Extension of Certain Timeframes for Employee Benefit Plans Affected by the COVID-19 Outbreak. See IRS Q&A-48.
Under the ARPA, it is my understanding that an employer subject to Federal COBRA has to review its records as far back as 10/1/2019 to see who had a COBRA qualifying event due to involuntary loss of employment or a reduction in work hours. Is this correct? Yes, the notice of the extended COBRA election period must be provided to any AEI (or any individual who would be an AEI if a COBRA election were in effect) who had a qualifying event before 4/1/2021, except no notice is required for those whose maximum COBRA coverage would have ended before 4/1/2021. Generally, the maximum COBRA coverage for covered employees who had an involuntary termination or reduction in hours before 10/1/2019 will have ended by 4/1/2021. COBRA premium assistance is available to individuals who have elected and remained on COBRA coverage for an extended period (that is, a period extending for more than 18 months) due to a disability determination, a second qualifying event or an extension under state mini-COBRA to the extent those additional periods of coverage extend into the subsidy period, provided the original qualifying event was a reduction in hours or involuntary termination of employment. See IRS Q&A-17. In this situation, an employer may need to review records that date back before 10/1/2019.
What is the deadline for mailing the notice of the extended COBRA election period? The deadline for providing the notice is 5/31/2021.
Should employers provide the model notice to everyone who terminates employment until September or provide the "normal" notice to ones we are sure are not eligible for the subsidy (i.e., voluntary terms)? A general notice that includes a description of the right to receive the premium assistance and the conditions for entitlement must be sent to all qualified beneficiaries who have a qualifying event that is a reduction in hours or an involuntary termination of employment from 4/1/2021 through 9/30/2021. Employers are not required to use the model notice. Because it might be difficult to determine whether an employee’s termination of employment is involuntary or not, employers should consider sending the required notice to all qualified beneficiaries who have a qualifying event that is a termination of employment. Often there can be a difference of opinion about whether a termination of employment is involuntary.
Can the same model notice go out for both Medical and ancillary coverage? Yes, as long as it clearly states what plans the notice applies to.
Where do we get the notices? Model notices developed by the Department of Labor are available at https://www.dol.gov/cobra-subsidy.
We have employees that were terminated in September – December 2020, do we have to send them the notice even if they didn’t elect COBRA? Yes, a notice of the extended COBRA election period must be provided to any AEI (or any individual who would be an AEI if a COBRA election were in effect) who had a qualifying event before 4/1/2021. Note that the notice is not required for those whose maximum COBRA coverage period, if COBRA had been elected or not discontinued, would have ended before 4/1/2021. Generally, this group includes those with qualifying events before 10/1/2019.
You stated that employees who are eligible for Medicare are not eligible for the COBRA subsidy, but does that also apply for employees eligible for Medi-Cal or Medicaid? No, employees who are eligible for Medicaid are not ineligible for the COBRA subsidy.
If an employee is enrolled in Medicare and becomes a qualified beneficiary by reason of an involuntary termination or reduction in hours, would the employee be eligible for a COBRA subsidy for dental and/or vision coverage? No, an employee enrolled in Medicare who becomes a qualified beneficiary under these circumstances may be eligible to elect COBRA for dental and/or vision coverage, but that individual would not be eligible for the COBRA subsidy. See IRS Q&A-12.
When an employee retires is the retirement treated as an involuntary termination that would make the employee potentially eligible for a COBRA subsidy? Generally, no. A retirement is generally a voluntary termination. However, if the employee can demonstrate facts and circumstances that, absent retirement, the employer would have terminated the employee, that the employee was willing and able to continue employment, and that the employee had knowledge that the employee would be terminated absent the retirement, then the retirement is an involuntary termination. See IRS Q&A-26.
Cal-COBRA Questions:
Does the ARPA COBRA subsidy apply to Cal-COBRA? I have one source that says the COBRA subsidy only applies to Federal COBRA. ARPA provides that the subsidies apply to state continuation coverage programs (mini-COBRA), which Cal-COBRA is one. An AEI would also have to meet any state eligibility requirements.
Who will be responsible to provide to employees eligible for Cal-COBRA the ARPA COBRA subsidy notices? In California generally the carriers provide Cal-COBRA packets and notices. Presumably, this practice will continue. Some notices under Cal-COBRA are required to be provided by the employer because there is a contract between the employer and the insurer requiring the employer to satisfy all Cal-COBRA notice requirements. Employers may need to review the arrangements they have with their carriers to determine whether the employers have a contractual obligation to provide the COBRA subsidy notices. Our reading of ARPA, taking into account that Cal-COBRA applies to insurers, is that unless there is a contract between the employer and the insurer requiring the employer to satisfy all Cal-COBRA notice requirements, responsibility for COBRA subsidy notices would fall to the insurer.
How will the premiums owed to the carrier for Cal-COBRA be handled? When an employee has Cal-COBRA coverage and the individual is an AEI, no premiums will be owed during the subsidy period. The carrier is not entitled to require payment of premiums during this period.
Will the carrier add those that enrolled in Cal-COBRA onto the employer’s invoice? No, the employer is not obligated to pay the premiums for employees enrolled in Cal-COBRA.
If the employee and a spouse/children are on Cal-COBRA, does the ARPA law require a 100% subsidy for the employee only or for all who are covered including employee, spouse, and children? The subsidy would apply to all AEIs (so spouses and children may be eligible). Requirements for eligibility for Cal-COBRA would also apply (ARPA does not override those requirements), but Cal-COBRA does not exclude spouses and children.
If a former employee is currently on Cal-COBRA and paying premiums, will the carrier be responsible to issue a premium refund for months already paid since 4/1/2021? Yes, AEIs are not required to pay any premiums during the subsidy period, so refunds would be needed.
Should Cal-COBRA participants continue to pay premiums to avoid cancellation for non-payment until the carrier is able to provide more information about ARPA and the new model notices? The carrier may not cancel an AEI's coverage for non-payment during the subsidy period, so this should not be necessary. If the participant is concerned, it is always good to check with the carrier on what procedures they have in place.
How will the carrier be reimbursed for the cost of Cal-COBRA? The carrier will be entitled to a COBRA premium assistance tax credit in the amount of the premiums that otherwise would have been paid.
For more details on these ARPA changes, please contact your Boutwell Fay attorney.