During the pandemic, many employers were caught off guard as COVID-19 drastically changed the nature of the workplace. One area that has caused some confusion—especially for local governments—is the changes to premium benefits under COBRA after President Biden passed the American Rescue Plan (ARP) into law earlier this year.
What is COBRA?
The Consolidated Omnibus Budget Reconciliation Act (COBRA) provides workers and their families with a temporary extension of health benefits through their (former) employer’s group health insurance plan. A qualifying individual can receive benefits under COBRA for various reasons, including a voluntary or involuntary loss of employment, forced reduction of work hours, temporary leave of absence, death, divorce, or other life events—this is called a “qualifying event.”
Employers with 20 or more employees in the prior calendar year must offer a continuation of coverage where, typically, such a change in employment would prompt benefit coverage to end. COBRA benefits usually last between 18-36 months, depending on the nature of the qualifying event. Although considered a benefit, COBRA still requires employees to pay premiums on the employer’s group health plan. COBRA, however, prohibits an employer from charging more than 102% in premium payments for beneficiaries of the program compared to similarly situated employees receiving regular coverage.
How Does the American Rescue Plan Impact Cobra?
Under the ARP, starting April 1, 2021, through September 30, 2021, employees considered “Assistance Eligible Individuals” (AEI) are entitled to 100% of their COBRA premiums paid by the employer. For example, if an AEI’s COBRA coverage ended on June 1, 2021, the employer would have to pay the AEI’s full premium payments for two months (April and May).
By May 31, 2021, employers and plan administrators that provide COBRA benefits must have sent out a notice regarding eligibility for COBRA premium assistance to AEI’s that elected for coverage if their 18-month benefits coverage window falls in April 2021. Employers and plan administrators must also notify AEI’s within 15-45 days of the subsidized premium expiration.
The ARP defines AEI’s as individuals that elect COBRA coverage after experiencing a qualifying event. Qualifying events under the ARP include a reduction of work hours (for example, the employer had to reduce business operations because of COVID-19), a change from full- to part-time status, taking a temporary leave of absence, lawful participation in a labor strike, or involuntary termination. Importantly, subsidized COBRA benefits do not cover an individual that may be qualified for coverage under another group benefits plan like a new employer’s plan.
After September 30, 2021, unsubsidized COBRA coverage reinitiates, and AEI’s with elected COBRA coverage must continue paying premiums by their regular due dates as summarized by EBSA Disaster Relief Notices 2020-01 and 2021-01.
ARP is unique in that employees benefit from coverage without the cost, but that means employers must eat that cost. The federal government grants employers paying for COBRA premium benefits to AEI’s a tax credit on federal payroll taxes to rectify this. By doing this, the federal government can ensure employees receive quick and efficient access to subsidized premiums but not financially cripple employers dredging through economic recovery.
Local Governments and the ARP
It should be noted that many questions have arisen about how the ARP affects local governments. Under the Public Health Service Act (PHSA), state and local government employers that fall under the PHSA must provide AEI’s with benefits coverage under the ARP.
If for some reason, a local government does not have a federal tax liability, it is still eligible for credit by the federal government. Recent Internal Revenue Service (IRS) guidance states that if an entity is required to provide COBRA benefits, but does not have a federal employment tax liability, it “can still claim credit on the Form 941 for the quarter in which the premium payee becomes entitled to benefits.” Further premium payees may “(1) reduce the deposits of federal employment taxes, including withheld taxes, that it would otherwise be required to deposit, up to the amount of the anticipated credit, and (2) request an advance of the amount of the anticipated credit that exceeds the federal employment tax deposits available for reduction by filing Form 7200.”
Elected Official Eligibility under COBRA
State and local governments have wondered whether their elected officials qualify for COBRA and premium payments under ARP. Based on available information, the Centers for Medicare Medicaid Services consider elected officials as qualified beneficiaries for typical COBRA coverage. So long as the elected official’s qualifying event falls under the list of qualifying events mentioned above, they should be eligible for premium assistance.