Tim’s Soapbox COBRA Subsidy Update 4/15/2021
‘Tim’s Friday Soapbox’
COBRA Subsidy Updates and Facts
The COBRA Subsidy Race Is Underway!
In this race the horses named Lawmaker, President, and Department of Labor
(DOL) all collided out of the starting gate. Lawmaker, passed a bill for an extended
COBRA subsidy from April 1, 2021 through September 30, 2021. President signed
the bill into law on March 11 and gave DOL until April 10 to send out the model
notice. President gave employers until May 31, 2021 to get the notice to eligible
participants. There are no typos in the dates above. The bill was effective before
the notice even went out. The Race Stewards have concluded even though there
was a collision out of the gate all the dates stand as we head toward a September
30 finish. HRi is going to do our best to make sure each of our clients makes it to
the Winner’s Circle.
Since I have now exhausted my creativity for the day, below are the rather
stupefyingly exhaustive facts and the impact they may have on your organization.
On March 11, 2021 President Biden signed the American Rescue Plan Act of
2021. It includes 100% “premium assistance” for COBRA coverage from April 1
through September 30, 2021, for those who lost coverage due to “involuntary”
termination or reduction in hours. Employers pay the premium for eligible enrolled
former employees and are reimbursed through Medicare tax credit. The subsidy
applies to Medical, Dental, and Vision coverage (employer + employee share),
including administrative expense. Since we cannot resist another acronym here you
are—-Assistance Eligible Individual (AEI). AEI’s are:
• Employees who lost coverage due to involuntary termination of employment or
reduction in hours
• Employees who are or could have been covered by COBRA for any portion of the
period from April 1, 2021 through September 30, 2021
• The employees’ spouses and dependents covered the day before the COBRA
qualifying event
We had to go to our archives because the AEIs include employees who lost
coverage due to involuntary termination of employment or reduction in hours who
are or could have been covered by COBRA for any portion of the period from April
1, 2021 through September 30, 2021.
Additionally, it includes loss of coverage:
• on or after April 1, 2021
• as far back as October 2019 who elected and are still on COBRA as of April 1,
2021
• as far back as October 2019 who elected and dropped COBRA, and
• as far back as October 2019 who never elected COBRA, but could have Who is
not an AEI?
• Employees (and their spouses/dependents) who voluntarily terminated
employment • People who are not COBRA-qualified beneficiaries in the first place,
such as domestic partners
• Employees terminated due to “gross misconduct”
The subsidy period starts April 1, 2021 and ends September 30, 2021. It ends
sooner whenever COBRA ends before September 30. It also ends early if
individual is eligible under another group health plan or Medicare.
Here is a summary of things to know:
The mechanics and timelines:
1. Starting in May (or perhaps April) : individuals receive Notice of Subsidy
2. 60 days to elect subsidy
3. 90 days to elect lower-cost coverage if offered by plan
4. AEIs do not pay COBRA premium for April through September
5. Employer “pays” COBRA premium
6. Employer claims refund on payroll taxes
7. Employer refunds AEIs within 60 days for payments for subsidized coverage
8. August/September or sooner: individuals will be notified that subsidy will end
very quickly and shortly
9. After September 30: To continue COBRA, AEIs may have to pay full premium
We have three notices to send for enrolled AEIs.
They are:
1. Subsidy Eligibility Notice
2. Second Chance Notice
3. Subsidy Termination Notice
We do not intend to rebuild the wheel, we are using DOL issued initial model
notices of April 7, 2021: Click here for the actual data release from the Department
of Labor: https://www.dol.gov/cobra-subsidy
The use of model notice is considered good faith compliance. Sometime between
15 and 45 days prior to expiration we will send a Subsidy Termination Notice. This
is tricky because the expiration period may be sooner than September 30 if the AEI
exhausts the 18-month COBRA benefit earlier than September 30. If you are not
confused yet you might not be reading closely.
In some jurisdictions where employers do not meet the COBRA head count
threshold there are mini-COBRA laws. The same general approach applies with
only minor modifications.
Anytime something like this comes up a thought some of us may have—-what if I
just ignore this and hope it goes away? Here is the penalty schedule:
Standard Excise Tax Penalty • Up to $100 day per person • Not to exceed $200
day per family
• Applies to each day that notice is not provided • Employer required to selfreport
to IRS • DOL may also assess civil penalties
• Participant may make a claim for civil penalties in failure to give notice
litigation
The race has a prize at the end, and it is a $ for $ payoff. Our intent is to get
everyone to the winner’s circle with the least possible disruption.
Once the AEI enrolls HRi will get an invoice from the insurance carrier and the exact
amount of the invoice will be passed on to our client. HRi will file for a refund on
behalf of our client when we file 941. If the amount of tax due on the 941 (the credit)
is less than the subsidy paid to the insurance carrier the IRS will issue a refund to
the client. To the best of our knowledge the IRS has yet to announce how soon the
refund will be issued.
As you may have discerned HRi has a significant amount of time and expense in
complying with ARPA. Notices, tracking, billing, questions from participants etc.
and nowhere in our pricing did we contemplate anything of this magnitude. In the
interest of keeping things simple we will be assessing a one-time fee of $17.50 for
each person to whom we do the initial mailing. The initial mailing goes to all who
were involuntarily terminated between October 1, 2019 and March 31, 2021 and
had health, dental or vision insurance through your organizations.
Questions? Our team is here to assist with navigating the numerous pieces
possible pitfalls, misunderstandings and potential liabilities.
COBRA Subsidy Contacts:
Alanna McGuire- alanna@hri-online.com (443) 321-7724
Matt Priester- VP Finance matt@hri-online.com (443) 321-7708
As always, also feel free to contact me directly with any questions I might be able to
help shed light upon or answer directly.
Stay well, and we will keep information updated routinely,
Tim Schaffer
President
(443) 321-7777
2127 Espey Court, Crofton, MD 21114
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