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Top Five Takeaways From The Eagerly-Awaited COBRA Subsidy FAQs

Heads have been spinning over the last few months as group health plan sponsors and related service providers struggle to navigate not only the COBRA enrollment and premium payment extensions issued under Department of Labor (“DOL”) Notices during COVID-19, but also the recently enacted COBRA subsidy and notice requirements issued under the American Rescue Plan Act (“ARPA”). As described in my prior alert, American Rescue Plan Act Impacts COBRA and Dependent Care FSAs, the ARPA included a 100% COBRA subsidy for certain “assistance eligible individuals” that experienced an involuntary termination of employment or reduction in hours during a specified time frame, and imposed new COBRA notice requirements on plan sponsors and issuers. This client alert summarizes the top five takeaways from the new FAQs issued by the DOL on April 7, 2021.
  1. The Model Notices are finally here! The ARPA requires that group health plans send out notices to all assistance eligible individuals no later than May 31, 2021, and that a subsequent expiration notice be provided 15 to 45 days prior to the expiration of an assistance eligible individual’s subsidy. Assistance eligible individuals will have 60 days from the date the initial notices are provided to elect subsidized coverage. The DOL issued model notices for these purposes, which can be found on the DOL website. There are different notices for those assistance eligible individuals losing coverage between April 1, 2021 and September 30, 2021, and those that experienced an involuntary termination or reduction in hours prior to April 1, 2021. Please be aware that group health plans are not required to use the model notices and can alternatively choose to draft their own notices. However, minimum content requirements must be met.
  2. Other DOL COBRA extensions to elect or pay for COBRA continue to be in effect, but the ARPA 60-day special enrollment period for the subsidy does not qualify for any additional extensions. Many plan sponsors expressed frustration and confusion as to whether the ARPA COBRA provisions would impact other COBRA enrollment and premium payment extensions currently in effect under DOL guidance issued over the past year. The DOL clarified that the subsidy election period does not terminate, reduce, or impact an individual’s pre-existing right to elect COBRA coverage, including under the extensions in effect under other guidance. Therefore, plan sponsors and issuers will need to continue to monitor and implement such extensions and coverage. However, importantly for plan sponsors, the DOL noted that these extensions for deadlines to elect or pay for COBRA do not extend the 60-day special enrollment period under the ARPA for purposes of qualifying for the subsidy.
  3. The subsidy applies to state COBRA continuation coverage. The DOL clarified that the COBRA subsidy is available for assistance eligible individuals that qualify for continuation coverage under state “mini-COBRA” laws. Although the ARPA will not impact any requirements, election periods, or other rules under the state continuation coverage laws, the subsidy will be available to assistance eligible individuals who elect continuation coverage under state law.
  4. The COBRA maximum coverage period includes extensions for disabilities and second qualifying life events. Under the ARPA, the COBRA subsidy ends for assistance eligible individuals on the earlier of: (1) the date the individual becomes eligible for another group health plan (including a new employer’s plan or a spouse’s plan); (2) the date the individual becomes eligible for Medicare; (3) the date the individual’s “maximum COBRA coverage period” ends; or (4) September 30, 2021. Under the new guidance, the DOL clarified that the maximum COBRA coverage period is not limited to 18 months from the end of employment; rather, for purposes of the subsidy, an extension to 29 months for people with disabilities or up to 36 months for individuals with a second qualifying event during the initial 18 month period will be included in the maximum COBRA coverage period.
  5. The Subsidy includes administrative fees. Assistance eligible individuals will not be responsible for paying the 2% administrative fee typically associated with COBRA coverage costs.

It is critically important that plan sponsors and issuers distribute the correct versions of model notices to the correct individuals, and that distribution of such notices are done in a timely manner. It is also important that plan sponsors and issuers take immediate action not only to comply with the ARPA, but also other COBRA extensions issued by the regulatory agencies.