Viewpoints from Craig Hasday
Today, President Biden signed the American Rescue Plan Act of 2021 (ARPA) and as with most COVID-19 legislation, it creates challenges to Human Resources departments across the nation. The Senate, in passing their version, sweetened the House’s proposed 85% Consolidated Omnibus Budget Reconciliation Act (COBRA) subsidy to 100% through September 2021. Yes, COBRA will be free from the first of the month following the effective date of the law (likely April 1, 2021) through September 30, 2021, for employees involuntarily terminated or whose hours were reduced; provided, however, that this does not extend the 18-month COBRA benefit period. This subsidy will be offset entirely by a reduction in payroll taxes, but COBRA costs are based upon premium-equivalent rates for similarly situated active employees.
Typically, those employees who are receiving COBRA benefits have more adverse medical claims experience than active employees.
Perhaps the selection won’t be as adverse, but clearly, there is exposure to employers to absorb higher costs. And even worse, those former employees who initially waived coverage will have a second chance to enroll – but unlike current COBRA rules, they won’t have to enroll retroactively to the original COBRA date; there can be a coverage gap. Electing employees will be given the right to elect any plan offered by the employer, not just the plan they were in at the time.
There are new notice and disclosure requirements for which plan sponsors will need to comply
with the new rights applying to employees who were at some point involuntarily terminated or whose hours were reduced. There’s also a notice required for those about to lose this subsidy – see our Special Compliance Alert that was released today. So, if you weren’t outsourcing COBRA administration already you should give serious thought to doing so now.
There are a lot of gray areas which will need to be clarified, but I suspect Internal Revenue Service rule writers will scramble to get out the basics and there will be a lot of “best efforts” to comply.
Special consideration should be given to stop-loss coverage in the event that coverage interpretation doesn’t align with those insurers – it may be prudent to get acknowledgment from the stop-loss insurer before guessing.
COVID-19 has been tough on all Americans.
I am not going to offer an opinion on whom it’s been toughest – but Human Resources departments need to be on that list.
Register now to continue the discussion in our March 16 webinar: The Impact of the American Rescue Plan Act of 2021 (ARPA)
See our related special compliance alert, Significant Employee Benefits Changes Contained in the American Rescue Plan Act of 2021 (ARPA)
EPIC offers these opinions for general information only. EPIC does not intend this material to be, nor may any person receiving this information construe or rely on this material as, tax or legal advice. The matters addressed in this article and any related discussions or correspondence should be reviewed and discussed with legal counsel prior to acting or relying on these materials.
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President, National Employee Benefits Practice