October 21, 2021

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Health Simplified

IRS Provides Second Round of FAQs on COBRA Subsidies

As we get closer to the September 30 expiration date of the COBRA premium subsidy provided under the American Rescue Plan Act (ARPA), the IRS has issued a second set of FAQs in Notice 2021-46 (Notice) to supplement its prior guidance and provide some specific answers to questions that remained unanswered. The first set of IRS FAQs were provided under Notice 2021-31, which we summarized in our previous LawFlash.

As a reminder, the ARPA provides for a temporary 100% COBRA premium subsidy for individuals who elect COBRA continuation coverage due to a loss of coverage as a result of any reduction in hours (whether involuntary or voluntary) or an involuntary termination of employment. The COBRA premium subsidy is available from April 1, 2021, through September 30, 2021.

Some of the guidance provided in the Notice includes the following:

  • Eligibility for COBRA Subsidy During Extended Coverage Periods –If an individual’s original COBRA qualifying event was a reduction in hours or involuntary termination of employment, the COBRA premium subsidy is available to an individual who is entitled to elect COBRA continuation coverage for an extended period due to a disability determination, a second qualifying event, or an extension under state “mini-COBRA” laws, if the extended period falls between April 1, 2021, and September 30, 2021, even if the individual had not notified the plan or insurer of the intent to elect extended COBRA before April 1, 2021.
  • End of COBRA Subsidy for Dental-Only and/or Vision-Only Coverage – If a COBRA subsidy eligible individual who enrolls in dental-only and/or vision-only coverage becomes eligible for any other disqualifying group health plan coverage or Medicare, he or she will lose COBRA subsidy eligibility for the dental-only and/or vision-only coverage, even if the new disqualifying group health plan coverage or Medicare does not provide dental and/or vision coverage.
  • Claiming the Tax Credit – As provided in Notice 2021-31, Q/A 72(2), the common law employer is generally the entity eligible to claim the tax credit for providing the COBRA premium subsidy. For purposes of determining the common law employer maintaining the plan, it is generally the common law employer for COBRA premium subsidy eligible individuals whose hours have been reduced or the former common law employer for those individuals who have been involuntarily terminated. In addition, if a group health plan (other than a multiemployer plan) subject to federal COBRA covers employees of two or more members of a controlled group, each common law employer that is a member of the controlled group is the premium payee entitled to claim the tax credit with respect to its employees or former employees. The Notice provides certain exceptions regarding third-party payers and business reorganizations.

For more background information about the COBRA subsidies under the ARPA, see our previous blog post.

As we described in our March 15, 2021 LawFlash, the American Rescue Plan Act of 2021 (ARPA) includes a 100% COBRA premium subsidy for any employee or dependent who is a COBRA qualified beneficiary (or will become one) resulting from an involuntary termination of employment or a reduction of hours (referred to as an Eligible Individual).

The APRA requires plan sponsors to provide specific notification of the COBRA premium subsidy to Eligible Individuals, along with notification of any early termination of the subsidy prior to September 30, 2021 (with certain exceptions). In addition, the ARPA requires the secretary of the Department of Labor, in consultation with the secretary of the Department of the Treasury and the secretary of the Department of Health and Human Services (collectively, agencies), to provide model notices within 30 days of enactment. In accordance with that requirement, the Department of Labor’s Employee Benefits Security Administration issued model notices on April 7, 2021 which can be used to satisfy the notice requirements, along with a set of FAQs which answers some outstanding questions, but leaves many questions unanswered, such as the mechanics of the payroll tax credit and the interaction of the subsidy with existing severance agreements or subsidized COBRA coverage. We expect that the Internal Revenue Service will issue additional clarifying guidance on some of the outstanding issues soon.

Some of the clarifications made in the FAQ guidance include:

  • Eligible Individuals must effectively opt in to receive the COBRA premium subsidy and plan sponsors are not required to provide the subsidy automatically. Such opt in can be made through the model “Summary of the COBRA Premium Assistance Provisions under the American Rescue Plan Act of 2021” which includes a “Request for Treatment as an Assistance Eligible Individual” form for an Eligible Individual to attest that he or she is eligible for the COBRA premium subsidy because he or she had a COBRA qualifying event due to any reduction in hours or involuntary termination of employment and is not eligible for Medicare or any other group health plan coverage. The inclusion of this summary and form may indicate that the agencies will allow a plan sponsor to rely on the attestation rather than making the determination whether someone is an Eligible Individual itself, but additional guidance on this point would be helpful.
  • The COVID-19 COBRA deadline extension guidance (described in our Blog Post dated March 1, 2021) does not apply to the notices or the election deadlines related to COBRA subsidies under the ARPA.
  • Notices required under ARPA are only required to be sent to Eligible Individuals.
  • Eligible Individuals only include those people who lost coverage due to an involuntary termination of employment or a reduction in hours, regardless of whether such reduction in hours was voluntary or involuntary.
  • COBRA premium subsidy is available to all group health plans subject to COBRA.

The model notices and FAQ guidance are published on a dedicated COBRA Premium Subsidy page at https://www.dol.gov/COBRA-subsidy. While the guidance indicates that use of the models is optional, it also provides that appropriate use of the models is considered to be good faith compliance with the requirements and therefore, we recommend that plan sponsors use the models rather than create one on their own.

Read more from ML BeneBits

At the 11th hour, the US Department of Labor’s Employee Benefits Security Administration (EBSA), with coordination and review by the Internal Revenue Service and the Department of Health and Human Services (collectively, the Agencies), finally issued guidance on the suspension of certain deadlines under the Employee Retirement Income Securities Act of 1974, as amended (ERISA) and the Internal Revenue Code of 1986, as amended (Code). As we described in our February 25, 2021 blog post, the Agencies previously issued EBSA Disaster Relief Notice 2020-01 and a joint final rule (collectively, Guidance) suspending timeframes for special enrollment elections, claims and appeals filing deadlines, and COBRA notice, election, and premium payment deadlines.

Under authority of Section 518 of ERISA and Section 7508(b) of the Code (collectively, the Statute), the Guidance suspended the deadlines to report those events effective March 1, 2020, until 60 days after the announced end of the National Emergency due to COVID-19 or such other date announced by the Agencies in a future notification (i.e., the Outbreak Period). A plain reading of the Statute, however, did not appear to permit an extension of the one-year suspension of these timeframes. In EBSA Disaster Relief Notice 2021-01 (Notice), the Agencies not only confirmed that the statutory one-year period could not be extended, but, faced with a fork in the road on how to interpret the Statute, the Agencies took the road no one wanted to travel, leaving plan fiduciaries and third-party administrators (TPAs) scrambling on how to communicate and administer the guidance provided in the Notice.

The Notice provides that the suspended deadlines will be disregarded (or tolled) until the earlier of (a) one year from the date the plan or individual was first eligible for relief, or (b) the end of the Outbreak Period. There’s an additional clarification (or caveat) that the maximum tolling period will not exceed one year. This interpretation is possibly a plan fiduciary’s and TPA’s worst nightmare because, according to the Notice, each participant or beneficiary has his/her own personal rolling deadline from the date of his/her own event. In other words, the time period each participant or beneficiary has to report an event falling within the Guidance is suspended until the earlier of one year from the date of that event or until the end of the Outbreak Period.

For example:

  • A participant who had a baby on March 9, 2020, and who would have had until April 8, 2020 (absent the National Emergency), to enroll her child in coverage under her employer’s group health plan will now have until April 8, 2021.
    • Special Consideration: While not addressed by the Notice, we assume coverage must still be retroactive to the date of birth in accordance with the HIPAA special enrollment rules and Section 125 of the Code. More guidance would be welcome.
  • A COBRA qualified beneficiary whose election period began on June 1, 2020, will now have until 60 days (the COBRA election period) after May 31, 2021, to make his/her election.
    • Special Consideration: It would appear from the Notice that a COBRA qualified beneficiary whose election period were to begin on June 1, 2021, will have until the earlier of 60 days (the COBRA election period) after May 31, 2022, or the end of the Outbreak Period to make his/her election.

The Notice encourages plan fiduciaries to be proactive about communicating these changes so participants and beneficiaries are aware that deadlines may expire soon. Plan fiduciaries will also need to revisit this once the National Emergency ends to decide whether to provide additional communications at that time. In fact, the Agencies suggest that supplemental notices may be necessary to fulfill ERISA fiduciary duties.

In addition to notifying participants and beneficiaries, plan fiduciaries may consider extending any imminent deadlines to minimize the impact on participants and beneficiaries. For example, the plan fiduciary could extend any deadlines that are expected to expire in March 2021 for a period of up to 30 or 60 days. While the Agencies do not necessarily require this, they do require plan fiduciaries to make reasonable accommodations and take additional steps to minimize the possibility of participants and beneficiaries losing benefits. Plan fiduciaries that choose to extend certain deadlines need to communicate with participants and beneficiaries about any extensions. Additionally, plan fiduciaries will need to reach out to their TPAs and settle on the best approach to comply with the Notice.

Read more from ML BeneBits

As we described in our LawFlash from last spring, the US Department of Labor’s Employee Benefits Security Administration (EBSA) and the Internal Revenue Service (IRS) (collectively, the Agencies) issued EBSA Notice 2020-01 and a joint final rule (collectively, Guidance) suspending certain deadlines under the Employee Retirement Income Securities Act of 1974, as amended (ERISA) and the Internal Revenue Code of 1986, as amended (Code).

The EBSA and IRS issued the Guidance under authority of Section 518 of ERISA and Section 7508A(b) of the Code, which authorize the Agencies to suspend certain timeframes otherwise applicable to pension and other employee benefit plans for a period of up to one year.

Generally, the Guidance suspends timeframes for the following deadlines specific to group health plans:

  • The 30-day period (or 60-day period, as applicable) to request a special enrollment opportunity under ERISA
  • The 60-day election period to elect COBRA continuation coverage
  • The date for making COBRA premium payments
  • The date for individuals to notify the plan of a qualifying event or determination of disability
  • The date within which individuals may file a benefit claim under the plan’s claims procedures
  • The date within which claimants may file an appeal of an adverse benefit determination under the plan’s claims procedures
  • The date within which claimants may file a request for an external review after receipt of a final internal adverse benefit determination
  • The date within which a claimant may file information to perfect a request for external review, upon finding that the request was not complete pursuant to applicable appeal rules
  • The date a plan sponsor or third-party administrator must provide a COBRA election notice

Under the Guidance, the deadlines to report the foregoing events under a group health plan were suspended effective March 1, 2020, until 60 days after the announced conclusion of the National Emergency due to COVID-19, which was referred to as the “Outbreak Period.” The Guidance, however, does not contemplate the notion that the period of National Emergency could run a full year from March 1, 2020, or even beyond. The one-year anniversary of the freeze on reporting the foregoing events ends on February 28, 2021, and a plain reading of the statute does not appear to permit an extension of the freeze. Furthermore, it is unclear if there are an additional 60 days that are added onto the tail end of the freeze after a period of one year. In other words, it may be that the Outbreak Period comes to a full stop on February 28, 2021.

The Agencies have not yet offered any guidance to plan sponsors and, as February 28, 2021, quickly approaches, plan sponsors are left wondering what steps they should take and what this all means. In anticipation of any guidance, plan sponsors should be prepared to fire up any suspended timeframes effective March 1, 2021, and should talk with their third-party administrators to implement an administrative process to begin the clock on any suspended timeframes.

Plan sponsors could also consider being more generous with the freeze, and offering participants additional time on the tail end to comply with any of the ERISA events listed above in order to lessen the participant and administrative burden as they ease back into business as usual. Finally, once a process has been settled on, plan sponsors should prepare communications describing the process to participants.