The American Rescue Plan Act of 2021 (ARPA) is a massive stimulus measure signed into law by President Biden on March 11, and it includes a few benefits-related items, the most significant of which is mandatory, subsidized continuation coverage of group health benefits. Of the things about this law that can be stated simply, that's about it.
A great many questions will have to be resolved through regulatory guidance from the U.S. Department of Labor (DOL) and Treasury Department. Congress set April 10 as the due date for that guidance, but ARPA's COBRA requirements are effective
April 1, so employers can't wait for that guidance to prepare.
Here's what we know now. (We'll be updating this article as more questions are raised and as things become more clear.)
- General Questions
- State Continuation
- Applicable Individuals and Benefits
- Notice Requirements
- Getting Reimbursed by Treasury
- Complications from DOL Deadline Extension Guidance
What's the 30,000-foot overview?
ARPA is similar (but not identical) to the COBRA subsidy program passed by Congress in 2009 following the financial crisis of 2008-09 (under the similarly named American Recovery and Reinvestment Act, or ARRA). ARPA is intended to provide significant assistance for people who lost job-based health care coverage in connection with the COVID-19 pandemic. The assistance takes a couple of forms.
- Financial assistance through 100% federally subsidized premiums for health care continuation coverage under COBRA for “assistance eligible individuals” (more on that term here) and their dependents from April 1 to September 30, 2021. Like under the 2009 ARRA program, employers are required to front the premium subsidy and later be reimbursed through a credit against employer-paid Medicare taxes (the 1.45% paid by the employer).
- Election assistance through a new 60-day COBRA special enrollment right, for which new notices will be required.
Do the premium subsidy and special enrollment rights under ARPA apply to governmental plans?
Yes. Both the statute and DOL guidance are clear that the mandates of ARPA apply to continuation coverage required under the Public Health Service Act.
Are the COBRA subsidies and special enrollment rights under ARPA mandatory or optional?
Mandatory. Whereas the benefits-related provisions of the Consolidated Appropriations Act 2021 (CAA21) were mostly optional, the COBRA provisions of ARPA are not. The one exception pertains to an implementation choice employers can make to offer or not offer COBRA special enrollees the ability to choose a different coverage option, the idea being that an employer could, if it wanted to, allow COBRA special enrollees the option of switching from a high-cost option to a lower-cost option. (More on that in the section below under "Will employees/former employees and their dependents have the right to change benefit options?".)
Are the COBRA subsidies and special enrollment rights retroactive?
Not really. The COBRA special enrollment right created by ARPA is not retroactive in the sense that a person whose COBRA qualifying event was back in December 2020 cannot now elect COBRA retroactive to December 2020. Rather, such person will only have the right to elect COBRA starting April 1, 2021, at the earliest.
Now, by the time employers get this implemented—probably in late April or May—it will be retroactive in a sense because the 60-day COBRA special enrollment period runs from the date the person receives notice of this right. So when a person elects COBRA under this new special enrollment right, coverage will be retroactive to April 1, 2021, or the first day of the person's COBRA coverage period, whichever is later.
Under ARPA, are premium subsidies available for state continuation coverage?
Yes. DOL guidance confirms that ARPA premium subsidies are "available" for state continuation coverage.
Are ARPA premium subsidies mandatory for state continuation?
Probably not. While the statute broadly states that its mandates apply to "continuation coverage provided pursuant to [federal COBRA], or under a State program that provides comparable continuation coverage," DOL guidance does not expressly state that employers are mandated to provide premium assistance, using noticeably different language to describe ARPA with respect to COBRA-covered and governmental plans versus plans subject only to state continuation. Whereas DOL said ARPA's "COBRA premium assistance provisions apply" to COBRA-covered and governmental plans, it merely said "premium assistance is also available" for plans subject only to state continuation. Given that ARPA relies on the current COBRA statute for enforcement, it's unlikely DOL even has the authority to enforce a premium assistance mandate for state continuation. The safest course, naturally, is to treat it as a mandate, though.
Does ARPA extend special enrollment rights to state continuation coverage?
No. While the language of the ARPA statute says that its mandates apply to "continuation coverage provided pursuant to [federal COBRA], or under a State program that provides comparable continuation coverage," in its sub-regulatory FAQ guidance DOL expressly states that ARPA does not alter any state law or rule concerning election timeframes.
Do ARPA's notice requirements apply to state continuation?
No. In its sub-regulatory FAQ guidance DOL indicates the the only part of ARPA that applies to state continuation is the availability of premium subsidies (and the possible option of changing plans, if state law, the insurance carrier and the employer allow it).
Applicable Individuals and Benefits
Who do the COBRA subsidies and special enrollment rights under ARPA apply to? In other words, what population of people do we need to be looking for?
ARPA requires that subsidies and special enrollment rights be provided to "assistance eligible individuals." Assistance eligible individuals are those employees and former employees (and their dependents) who:
- lose coverage because of the employee's involuntary termination of employment or reduction in hours of service, and who
- at any point between April 1 and September 30, 2021, are within the first 18 months of COBRA coverage (29 months, if COBRA was extended on account of disability) or would be within the first 18 months of COBRA coverage if it had been elected.
This means that—in the typical case where active coverage continues through the end of the month—employers should be looking for any employee or former employee who terminated employment or who experienced a status change and lost eligibility because of a reduction in hours between October 1, 2019, (and thus the COBRA continuation period would have begun November 1, 2019) and August 30, 2021, (and thus the first month of the COBRA continuation coverage period would be September 2021).
The next step is to limit the population to those employees who were involuntarily terminated or whose hours were involuntarily reduced.
What exactly does ARPA mean by "involuntary" termination of employment?
The statute doesn't say, and DOL hasn't provided guidance on this yet. However, the ARRA subsidy from 2009 had a similar provision, and here's what we know from that law. Under the 2009 ARRA program, an involuntary termination was (i) a severance from employment (ii) due to the independent exercise of the unilateral authority of the employer to terminate the employment, other than due to the employee’s implicit or explicit request (iii) where the employee was willing and able to continue performing services. Layoffs, furloughs, suspensions of employment and reduction of hours (that resulted in loss of eligibility) all were considered involuntary, even if there were recall rights. Raise-your-hand terminations and buy-outs were considered involuntary as were good-reason terminations (where the employee quit for good reason like being in a hostile work environment).
Is there an exception for employees fired for misconduct?
Effectively no, not under ARPA. The COBRA statute itself allows employers to not offer COBRA continuation coverage if an employee is terminated for gross misconduct, and DOL guidance confirms that premium subsidies are not available for gross-misconduct terminations. However, the two go together. If an employee is terminated for gross misconduct, there's no COBRA continuation coverage and no subsidy. If COBRA is offered to someone who was terminated for misconduct that might meet the gross-misconduct standard, the presumption will be that the conduct was not gross misconduct, and so subsidies should be provided.
A word on COBRA's gross misconduct exception: Gross misconduct under COBRA is a high bar for the employer to meet. Even without ARPA, denying COBRA continuation coverage is risky. With ARPA providing tax credits to cover the COBRA premium subsidies, is it worth the risk?
Does ARPA require that COBRA subsidies and special enrollment rights be provided to spouses and children who themselves experience a COBRA qualifying event?
No. The COBRA triggering event is the employee's termination of employment or reduction in hours that results in loss of eligibility. Spouses and children of the employee or former employee get to tag along and have independent rights to elect COBRA, as normally happens with COBRA continuation coverage. However, spouses who lose coverage because of death of the employee or divorce from the employee are not entitled to ARPA's subsidies or special enrollment rights. Similarly, children who age out are not entitled to ARPA's subsidies or special enrollment rights.
What benefits do the COBRA subsidies and special enrollment rights under ARPA apply to?
Unless and until guidance is issued to the contrary, assume the ARPA's COBRA subsidies and special enrollment rights apply to major medical, dental, vision and employee assistance program (EAP) benefits, but not healthcare FSAs. We think many people assumed ARPA applies just to major medical, and dental and vision carriers may have made the same assumption, so check with the carrier before giving special enrollment rights for dental and vision.
Will employees/former employees and their dependents have the right to change benefit options?
This is about the only thing that employers can opt out of. Ordinarily, COBRA continuation coverage rights apply only to the coverage option in which the employee was enrolled at the time of the COBRA qualifying event. That's still the case; the COBRA special enrollment right created by ARPA does not also give employees the right to change plan options. However, ARPA gives employers the option of allowing employees to enroll in lower-cost coverage, but not higher-cost coverage.
Does ARPA require any special notices?
Yes. ARPA requires 3 new notices:
- Re-Up Notice - For those who received (or who, due to the time it takes to implement new notices, will receive) the normal COBRA election notice but whose COBRA continuation period overlaps the subsidy period of April 1 through September 30, 2021, and who did not or have not elected COBRA, employers must send a new notice advising of the ARPA subsidy and providing a fresh 60 days from receipt of the notice to elect COBRA coverage that starts April 1, 2021. Employers have until May 31, 2021, to send this notice, which we've dubbed the "re-up notice." (DOL calls it the "Notice in Connection with Extended Election Period," but we like our term better.)
- Modified COBRA Election Notice - As soon as administratively feasible, employers must begin sending modified versions of their normal COBRA election notices to include information about the premium subsidy and, if applicable, special enrollment rights.
- Subsidy Expiration Notice - Between 45 and 15 days prior to expiration of the subsidy, employers must notify COBRA qualified beneficiaries that their subsidy is coming to an end, the date on which the subsidy will expire, and that the COBRA qualified beneficiary may be eligible for coverage without a subsidy through COBRA or under another group health plan. The subsidy expiration notice must be given even if the subsidy is ending because the person has reached the end of his/her COBRA continuation coverage period.
DOL has published model notices here; however, for reasons identified below, we recommend significantly editing them before using.
What must be included in the re-up and modified COBRA election notices?
DOL has issued model notice templates, but they're a little lacking. Here's what the statute says must be included. The item in bold is not clearly set out in the model DOL notices, and it should be.
- The forms necessary for establishing eligibility for the ARPA COBRA subsidy;
- The name, address, and telephone number of the plan administrator and any other person maintaining relevant information in connection with the subsidy;
- A description of the special 60-day ARPA COBRA special enrollment period;
- A description of the COBRA qualified beneficiary's obligation to notify the plan of other plan or Medicare coverage that would make the person ineligible for the subsidy and the penalty for failure to provide this notification;
- A description, displayed in a prominent manner, of the COBRA qualified beneficiary's right to a subsidy and any conditions on entitlement to the subsidy; and
- A description of the right to enroll in different coverage if the plan opts to allow it.
Getting Reimbursed by Treasury
Can employers recoup the subsidy from the total amount of Medicare taxes paid or just part of it?
Employers can recoup amounts provided in COBRA subsidies only from the ordinary 1.45% employer-paid portion of Medicare payroll taxes. Employers cannot claim a credit against the employee-paid portion or the 0.9% additional Medicare tax withheld from employee wages in excess of $200,000. The tax credit is refundable, though, so Treasury will be creating forms and a process for employers to seek reimbursement from Treasury. We expect the process will look a lot like the process for getting paid back for FFCRA paid leave. We also expect that Treasury will allow tax credit overages to roll to future payroll tax cycles for offset there, like FFCRA tax credits.
A self-insured employer doesn't pay premiums, and the idea is to fully reimburse employers for this mandated subsidy, so can a self-insured employer get reimbursed based on claims costs?
Unknown at this point, but we think it unlikely. Treasury is probably going to keep this as simple as possible, and a subsidy amount that varies from one person to another is probably more than Treasury can handle. It's likely Treasury will reimburse self-insured employers based on the COBRA premium that the employer uses and not actual claims costs.
Complications from DOL Deadline Extension Guidance
Recall that back in May 2020 DOL issued guidance extending various deadlines under ERISA, including COBRA election and premium payment deadlines. (ERISA Section 518 expressly gives DOL this authority, by the way.) The guidance extends all applicable deadlines day-for-day to the extent the period to which the deadline relates occurs during what DOL called the "Outbreak Period." Suffice it to say, it's been a huge headache for employers, carriers and TPAs.
Does the DOL deadline extension guidance apply to ARPA's COBRA subsidy and special enrollment requirements?
No, thank goodness! DOL's recent ARPA guidance expressly states that the extension of deadlines required by its earlier pandemic guidance does not apply to the COBRA special election periods provided under ARPA. (But neither can employers rely on the deadline extension guidance for providing the required ARPA notices, so the deadlines above are also not extended.)