April 18, 2021
As part of the new American Rescue Plan of 2021 (ARP), changes have now been made to extended COBRA coverage. Previously, a terminated employee received extended group healthcare if he or she continued making payments or co-pays. Now under the new Act, the employee pays nothing out of pocket and the premiums are paid for him or her during the extended period. Here are the details for HR consultants to be mindful of:
Previous COBRA
This applied to companies that had at least 20 or more employees, both full or part-time and had a group health care plan in effect. If an employee is terminated (for other than gross misconduct or resignation), has a reduction in work hours or goes from full-time to part-time, that person becomes a qualified beneficiary and is notified by the insurance carrier it has the option of continuing the coverage for at least 18 months. However, the beneficiary must continue making payments.
From an HR consulting standpoint, under the special provisions of Cal-COBRA, the extension period goes as long as 36 months.
It also applies if an employee is furloughed or has a layoff and during this period did not receive health coverage.
In many cases the extended premiums were more expensive because the company previously had covered part of the premium. During the extended period, the employee would pay the full premium and an administrative fee.
Coverage was also provided, if certain conditions were met, as to an employee’s spouse and dependent children.
Reduction in work hours is defined under the group plan. In other words, the group plan usually has a minimum number of hours the employee must work to be covered. If the employee goes below those minimum hours and is no longer covered, it is considered a qualifying event (26 CFR Section 54.4980B-4e)).
The whole idea is the terminated employee would have health coverage while he or she is looking for a new job.
New COBRA
The same basic COBRA rules apply, except that premiums are no longer paid by the employee. They get what is called premium assistance. Premiums are paid by the employer for the period April 1, 2021 through September 30, 2021. These payments are reimbursed through payroll tax credits.
This premium assistance is only for the period April 1, 2021 through September 30, 2021 (six months). It is anyone’s guess whether this will be continued. Assuming there is extended coverage under the plan for 18 months after termination, here are the different scenarios (for these hypotheticals it is 18 months, although you have to add up to 36 months in California):
Termination after April 1, 2021:
The employee shall receive premium payments through September 30, 2021:
Example 1: Linda is terminated in May 2021. Her premiums will be paid for the period May through September 30, 2021. Thereafter, she will have to start paying full premiums herself.
Termination before April 1, 2021 and the employee has paid all premiums:
There is no relief under the Act and the employee does not receive reimbursement for premiums previously paid.
Example 2: Jim was terminated in September 2019 and paid all his COBRA premiums for the 18-month period through March 2021. He will receive no relief under the Act.
Termination before April 1, 2021 and the employee has paid partial premiums:
Assuming the employee is not later covered under a new employer and wants coverage, the employee’s premiums are paid for the balance of the period April 1, 2021 through September 30, 2021.
Example 3: Sally was also terminated in September 2019. Her 18-month entitlement period ends in March 2021. She paid premiums for one year–from September 2019 through September 2020. Then she stops paying. She still has six months left on her 18-month period, so she can receive premium payments for the period April 1, 2021 through September 30, 2021.
Termination before April 1, 2021 and the employee has not paid any premiums:
Assuming the employee is not later covered under a new employer and wants coverage, the employee’s premiums are paid for the full period April 1, 2021 through September 30, 2021.
Example 4: John was similarly terminated in September 2019. His 18-month entitlement period ends in March 2021. He can receive premium payments for the period April 1, 2021 through September 30, 2021.
This premium assistance is not available if, for example, the employee becomes entitled to group benefits through another employer, under a spouse’s plan or with Medicare coverage.
To help soften the employer’s payment of these premiums, they get a tax credit for that amount. In other words, the employee does not receive money to pay the premiums–instead they are paid for by the employer.
An employee has 60 days after notification to elect receipt of this premium assistance.
As long as the premiums are the same or lower, the employee can also elect to receive different coverages under the same plan.
The employee is not required to pay any administrative fee during the covered period.
What Notices are Employers Required to Send its Employees?
In many cases, the employer’s health care plan administrator would have the notices needed. It is also good idea to call your plan administrator and get definitive direction as to who sends what notices. In the absence thereof, here are the notices to be sent out:
“Model ARP General Notice and COBRA Continuation Coverage Election Notice”: Sent to employees by the health care plan administrator and not the employer.
“Model COBRA Continuation Coverage Notice in Connection With the Extended Election Periods”. Sent to employees by the health care plan administrator and not the employer.
“Notice of Expiration of Period of Premium Assistance.” Sent to employees by the health care plan administrator and not the employer.
Notice to Plan Administrator of an Employee’s Termination:
This can be sent informally, but must be within 30 days of the termination.
The federal FAQs on the subject indicate: “the plan or issuer [in other words the insurance company] should provide you and your beneficiaries with the notice of your eligibility to elect COBRA continuation coverage and to receive the premium assistance. The notice should include any forms necessary for enrollment . . .”
This means that the insurance company gives the above notices and not the employer.
If a terminated employee does not receive notice, it can demand same through a “Request For Treatment as an Assistance Eligible Individual”. If an employer receives this notice, it should be forwarded immediately to the carrier.
Your group insurance company will also include amendments to its plan covering these extended benefits.
Because of the complexity of these issues, HR consultants need to be keenly aware of this new law.
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