The COBRA Continuation Coverage Explained for Employers

Last month on March 11, 2021, President Biden signed the American Rescue Plan Act, which included a COBRA premium subsidy. The act significantly impacts employers who have more than 20 employees and offer benefits. Employers must pay 100% of applicable COBRA premiums for eligible individuals starting April 1, 2021, and continuing through September 1, 2021.

Employers can expect to be reimbursed by the federal government for each dollar paid when they elect the matching tax credit and provide the necessary forms.

At Employer Support Services, we aim to assist employers in maintaining the guidelines, documentation, and notifications of the COBRA subsidy, so they stay compliant. For more information on the COBRA continuation coverage or for COBRA management assistance, contact us today.

 

Who is Eligible for the COBRA Continuation Coverage?

Qualifying employees and their dependents are eligible for the COBRA continuation coverage if they lost or will lose healthcare benefits due to involuntary termination or reduction in hours. The termination and hour reduction do not have to be COVID-19 related; however, the employee must still be within their 18-month maximum COBRA period. The subsidy is available to employees who did not elect COBRA coverage during their original election period, as well as those who initially elected COBRA but let their coverage lapse.

Consequently, employees who are terminated as far back as October 2019 may benefit from the subsidy because their COBRA period does not expire until April 30, 2021. However, the maximum COBRA period is not extended in such a case (that is, it is still counted from the date of the original qualifying event).

Employees Who are Not Eligible:

Individuals who voluntarily left their employment are not eligible for the COBRA continuation coverage, including individuals who retired. Individuals who were terminated for gross misconduct are also not eligible for the subsidy. The subsidy is also not available to employees who are eligible for other health plans such as Medicare, a new employer’s plan, or a spouse’s plan.

 

Employer Reimbursement – How the COBRA Continuation Coverage Works for Employees & Employers

The COBRA continuation coverage starts April 1, 2021, and can last the original maximum coverage period. Meaning the additional election period does not extend the coverage period, only when it can be selected. Employees have 60 days after they receive their COBRA election notice to elect COBRA continuation coverage.

After the election is selected, employers obtain the subsidy and pass it onto COBRA enrollees. Employers are responsible for paying full COBRA or state premiums and administration fees. If any employee pays during the COBRA continuation coverage period, the employer must provide reimbursement to the employee. Employers recover their payments through a payroll tax credit against employers’ quarterly Medicare taxes. If the credit exceeds the amount of payroll taxes due, employers must complete the quarterly Form 941 to receive the refund.

 

Additional Notification Requirements for Employers in Regards to the COBRA Continuation Coverage

• Employers are expected to distribute notices to newly eligible employees describing the subsidy and their eligibility
• Employers must notify existing beneficiaries that premium payments are not required during the subsidy period
• Employers are also required to send notices when the subsidy is ending for each employee

It is paramount that employers maintain notification guidelines and additional paperwork associated with the COBRA continuation coverage. Any COBRA violation can result in a $110/day penalty for each employee violation.

 

How Employer Support Services is Assisting Employers with the COBRA Continuation Coverage

At Employer Support Services, we are diligently sending out notices to eligible, qualified beneficiaries in accordance with Federal notification guidelines to reduce employer stress and keep companies compliant. We also handle all enrollments and terminations to keep timelines and paperwork intact and organized.

When you partner with ESS for your COBRA benefits administration, you avoid guaranteed stress and penalties from the IRS and DOL. We stay abreast of any guidance and developments regarding ARPA regulations and continue to keep our clients informed and current with regulations.

 

What ESS Needs to Keep You Compliant

The COBRA continuation coverage is intended to benefit employees who were recently terminated or laid off involuntarily. To ensure we offer the extension to eligible employees only, we ask for the reason all employees have been terminated since October 2019. If needed, we can provide current payroll customers with a list of all terminated employees on record.

Please do not hesitate to contact us with any additional questions or concerns regarding the ARPA COBRA continuation coverage. Contact us at 225-364-3000.