One component of the American Rescue Plan Act (ARPA) signed into law on March 11, 2021 is that COBRA eligible individuals will have free COBRA coverage for six months, beginning April 1, 2021 and ending September 30, 2021. Here's what to know about how ARPA affects COBRA eligibility rules if you have an ICHRA.
For employers that offer the Individual Coverage HRA (ICHRA) as their health insurance plan, it is important to note that this plan is considered a group health plan and is subject to COBRA and ERISA laws. If you are an employer required to offer COBRA, either at the federal or state level, read on to learn how this will impact your business.
Here are the top questions we are fielding about The American Rescue Plan Act and how it affects ICHRA and COBRA.
Who is required to offer COBRA?
COBRA generally applies to all private-sector group health plans maintained by employers that had at least 20 employees in the previous calendar year.
Make sure you check your state specific cobra laws as well!
What does ARPA require for COBRA subsidies?
Section 9501 of ARPA requires employers to provide COBRA premium subsidies to certain employees from April 1, 2021, through Sept. 30, 2021.
Who is eligible for the free COBRA under ARPA?
Premium assistance is available to “Assistance Eligible Individuals” (AEIs).
AEIs were covered by the group health plan on the day before the qualifying event (termination, reduction hours) and elects COBRA continuation coverage. If the individual left voluntarily that does not qualify for COBRA coverage.
Another group of assistance eligible individuals are those to be given a second chance at COBRA. Notice must be given to former employees that were COBRA eligible after Oct 1, 2019, If an employee declined COBRA coverage, or if the employee elected COBRA coverage and later discontinued it, the employee now has a second chance to elect coverage and receive the subsidy (if the 18 monthly COBRA eligibility period has not expired). Such employees must receive a notice of the right to elect subsidized coverage by May 31. The coverage will end when COBRA eligibility ends. These individuals can elect to begin the subsidized coverage on April 1, even if they return the election form after April 1.
Can the individual get premium assistance COBRA if they have other means of health insurance?
No. They're not eligible for COBRA premium assistance if they are eligible for other group coverage (either from new employer or spouse) or Medicare. QSEHRA, FSA, and excepted benefits do not qualify as group coverage.
How does ARPA effect COBRA with ICHRA?
Under normal circumstances, there are very few instances where individuals would elect COBRA under the Individual Coverage HRA (ICHRA). However, with the premium assistance of ARPA, COBRA is suddenly more enticing.
Under ARPA, the COBRA ICHRA will operate in the following manner:
- Employee pays health insurance premium to carrier (cannot accept tax credits)
- Employer reimburses employee for claims
- Employer receives Medicare FICA tax credits at year end
How is the premium assistance credit calculated under ICHRA?
The credit is limited to 102% of the amount actually reimbursed per AEI.
For example an employer with two AEI's that each are eligible for $1,000 monthly allowance under COBRA. Person A has a health insurance premium of $900, Person B has a health insurance premium of $2,000. The employer is able to submit $918 FICA credit for Person A and $1,020 for Person B.
How does the employer claim premium assistance credits?
Employers can claim credits on their Form 941, Employers Quarterly Federal Tax Return.
To reduce their tax deductions in anticipation of the credits, employers can fill out Form 7200, Advance Payment of Employer Credits due to Covid-19.
What are the employer notice requirements for COBRA?
Employers must provide a notice to both types of assistance eligible individuals, which necessarily includes employees who are involuntarily terminated, or who suffer a reduction of hours, between April 1 and Sept. 30; and employees who were terminated between Oct. 1, 2019, and April 1, 2021, who have not exhausted their COBRA coverage, and who declined COBRA coverage or discontinued it. Those individuals are entitled to reapply for COBRA benefits subject to the subsidy.
Note that employees are not entitled to a refund of premiums already paid, and are not entitled to the subsidy if they are eligible for coverage under another plan (such as a spouse’s or new employer’s plan) or for Medicare.
The Covid-19 national emergency “outbreak period” which extends deadlines for COBRA election does not apply to this subsidy, and individuals have 60 days to elect this premium assistance coverage.
There are two notices that employers are required to deliver. The DOL has set Model Notices on their site as well.
- Premium assistance Notice- Must be delivered by May 31, 2021
- Expiration of Premium assistance delivered 15-45 days prior to premium assistance expiration
Is there an Employer Tax Penalty for failing to meet COBRA requirements?
Yes, this tax could be as much as $100 per qualified beneficiary, but not more than $200 per family, for each day that the taxpayer is in violation of the COBRA rules.
For additional information please review the DOL guidance and Notice 2021-31.
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I wrote this blog because I love helping people decode confusing insurance jargon and understand the fine print. I'm a licensed health insurance professional and specialize in simplifying health insurance for individuals and small businesses. My QSEHRA articles have been featured regularly on Accounting Today, Accounting Web, HRWeb, and other industry publications. I'm also a member of Take Command Health's client success team and a full-time mom. Learn more about me and connect with me on our about us page. Thanks!