Temporary COBRA Changes Under the American Rescue Plan Act

On March 11, 2021, President Biden signed into law the American Rescue Plan Act of 2021 (the “Act”). The Act provides, among other things, temporary premium assistance and an extended election period for continuation coverage under the Consolidated Omnibus Reconciliation Act (“COBRA”). This client alert provides a summary of the Act’s provisions relating to COBRA continuation coverage.

I.  Assistance Eligible Individuals

The COBRA relief provided pursuant to the Act applies to assistance eligible individuals (“AEIs”). AEIs are COBRA qualified individuals (including covered employees, their covered spouses, and covered dependents) with respect to a period of coverage during the period beginning on April 1, 2021 and ending on September 30, 2021 who (i) are eligible for COBRA continuation coverage due to an involuntary termination of employment or reduction of hours and (ii) elect COBRA continuation coverage. Individuals who become eligible for COBRA continuation coverage due to any other qualifying event (including death, divorce/legal separation, or voluntary termination) will not be AEIs under the Act.

II. Premium Assistance

The Act provides that an AEI will be treated as having paid in full the amount of any premium for COBRA continuation coverage for a period of coverage during the six-month period beginning on April 1, 2021 and ending on September 30, 2021. Under the Act, AEIs lose eligibility for this COBRA premium assistance if they become eligible for health coverage through either Medicare or another group health plan (other than a plan that provides only excepted benefits, a health flexible spending account, or a qualified small employer health reimbursement arrangement). The employer or insurance carrier (as applicable) will be responsible for covering the cost of COBRA continuation coverage for any AEI that elects such coverage. For group health plans subject to federal COBRA under either the Internal Revenue Code, the Employee Retirement Income Security Act, the Public Health Service Act, or for self-insured group health plans, the employer maintaining the group health plan will be responsible for covering the premium costs. For fully insured group health plans not subject to federal COBRA (e.g., small-employer plans or church plans subject to state continuation coverage programs), the insurer will be responsible for covering the premium costs. Employers and insurers will be reimbursed by the federal government for the amount of COBRA premiums paid through a credit or refund of an overpayment of payroll taxes.

III. New Coverage Enrollment Option

The Act also creates a “plan enrollment option,” under which a group health plan may (but is not required to) allow AEIs to elect to enroll in different COBRA continuation coverage. If a plan enrollment option is offered, an AEI must be provided a 90-day election period, measured from the date that notice of the plan enrollment option is furnished, during which the AEI may elect different coverage. AEIs may only elect another coverage option if: (i) the premium for the new coverage is not higher than the premium for the prior coverage, (ii) the new coverage is also offered to similarly situated active employees at the time of election, and (iii) the new coverage option does not provide only excepted benefits, is not a qualified small employer health reimbursement arrangement, or is not a health flexible spending arrangement.

IV. Extended Election Period for Coverage

An individual who does not have an election of COBRA continuation coverage in effect on April 1, 2021 but who would be an AEI if such an election were in effect (i.e., the individual was involuntarily terminated or had his or her hours reduced but did not elect COBRA continuation coverage) may elect COBRA continuation coverage during an extended election period. This extended election period is also available to individuals who elected COBRA continuation coverage due to an involuntary termination or reduction in hours but discontinued such coverage prior to April 1, 2021. The extended election period begins on April 1, 2021 and ends 60 days after the date on which notice of the extended election period is furnished to the individual. Any COBRA continuation coverage elected by such an individual during this extended election period will commence retroactively with the first coverage period beginning on or after April 1, 2021, but will not extend beyond the maximum period of coverage that would have been required if the coverage had been elected as required under COBRA or had not been discontinued.

V. Required Notices

The Act imposes additional notice requirements with respect to AEIs and other individuals entitled to elect COBRA continuation coverage during the extended election period. In particular, COBRA election notices furnished during the period beginning April 1, 2021 and ending September 30, 2021 must (in addition to the existing requirements for COBRA election notices) include the following information:

  1. the forms necessary for establishing eligibility for premium assistance,
  2. the name, address, and telephone number for the plan administrator (or other person that maintains relevant information, such as a COBRA administrator),
  3. a description of the extended election period,
  4. a description of the AEI’s obligation to notify the group health plan once the AEI ceases to meet the requirements for premium assistance,
  5. a description of the AEI’s right to a subsidized premium and any conditions on entitlement to the subsidized premium, and
  6. a description of the option of the AEI to enroll in different coverage if the employer is allowing employees to elect to enroll in different coverage.

The requirement to provide the above additional information may be satisfied by modifying the existing COBRA notice forms or by including a separate special document with the notice that is otherwise required by COBRA. Notice of the extended election period must be provided to eligible individuals no later than May 31, 2021 (60 days from April 1, 2021).

The Act also indicates that a group health plan is required to provide a written notice to AEIs prior to the end of the premium assistance period that warns AEIs that their premium assistance is expiring soon. In particular, such a notice must inform the AEI that (i) the premium assistance will expire soon (and must prominently indicate the date of expiration) and (ii) the individual may be eligible for coverage without any premium assistance through COBRA continuation coverage or coverage under a group health plan. However, notice is not required for AEIs who lose eligibility for the premium assistance due to becoming eligible for Medicare or coverage under any other group health plan. The notice to AEIs that their premium assistance is expiring must be provided no earlier than 45 days and no later than 15 days prior to the date on which the premium assistance expires. For AEIs whose maximum period of COBRA coverage does not expire prior to September 30, 2021, the notice must be provided between August 16, 2021 and September 15, 2021.

Lewis Rice pension & employee benefits attorneys are knowledgeable in all aspects of employee benefits matters. If you have questions about COBRA continuation coverage as it relates to the American Rescue Plan Act of 2021, please contact an author listed above.