A Salute to Those That Made it All Happen!
By: Dorothy Cociu, RHU, REBC, GBA, RPA, President, Advanced Benefit Consulting
Published in the May-June, 2021 issue of The STATEMent | Read the article online
Published in the June, 2021 issue of California Broker | Read the article online
So much has happened in Washington since I last updated you! Shortly after I wrote the feature article for March-April (“Washington Roundup; Diving Into Federal Updates, Including COVID-19, The New Stimulus Bill (CAA), Agent Disclosure Requirements, and Grandfathered Health Plan Rules”), the DOL/EBSA released Notice 2021-01, which significantly changed the rules for the Outbreak Period, and then a short time later, President Biden signed The American Rescue Plan Act (ARPA) of 2021, which is a $1.9 Trillion relief package/entitlement program, which, combined, threw the entire health insurance industry into what could have been the most chaotic state of turmoil we’ve seen in decades.
Although there is a lot of stress and chaos to our industry due to these new statutes, I don’t want this article to be a negative one. Quite frankly, we’ve had enough negativity throughout 2020 and early 2021 with the pandemic. As vaccine distribution widens and people now have more hope than they have in the past 14 months or so, I want to focus on the new requirements, and the chaos that was dumped on us with little or no notice, but also on those in our industry that stepped up, put on their big-boy (or girl) pants, and dove in to make things happen… So this article is dedicated to the Health Insurance industry… To the carriers, the third party administrators, the general agencies, the benefits attorneys, the benefit consultants, and the related companies that were all, whether we liked it or not, thrown into turmoil, and studied, trained and implemented what was and is needed due to these new laws, and helped the most affected; the insureds, the employers that sponsor health plans, the Medicare recipients, and many more, often times with little or no additional compensation, and with very little sleep these past several months! This is my salute to all of you!
The Outbreak Period Changes Resulting from Notice 2021-01; How Difficult Is This to Administer?
Let me begin by restating what I reported in the updated version of the above-referenced article (updated March, 2021). Prior to the release of EBSA Notice 2021-01, we were expecting the “outbreak period” limitation which resulted from COVID-19 legislation, would expire on February 28, 2021. On February 26, 2021, the DOL/EBSA released Notice 2021-01, which drastically changed the way we track HIPAA Special Enrollment, the 60-day period to elect COBRA, the date for making COBRA premium payments, along with benefit claim determinations. This Notice allowed the deadlines to be extended based on an individual-by-individual basis….and that each person has their own “tolling period.” To the average consumer or insured, this is all great news, but to those who have to administer it, this was anything but. Why is this important and why is this rolling basis difficult to administer? What are the obstacles? I asked a few industry representatives and my own company’s benefits attorney, Marilyn Monahan, of Monahan Law Office, to help me explain.
“I suspect the biggest challenges will be implementing the COBRA timeframe extensions, as well as the additional time that participants have to submit health FSA claims,” stated Marilyn Monahan. “If FSA claims are submitted late, it may be difficult to track and calculate carryovers and forfeitures. However, employers and TPAs may be able to offset these concerns through communication, such as by encouraging participants to get their claims in as soon as possible so that they are reimbursed as soon as possible. The extensions in connection with COBRA—coupled with the COBRA subsidies—can create some complex administrative issues. I also suspect, however, that with the passage of time, it becomes less likely that a qualified beneficiary will request a COBRA effective date that goes back up to one year.”
From an administrator’s perspective, this was not an easy task. Mary Ann Wessel of EBA&M Corporation, who administers COBRA as well as claims administration, provided these thoughts: “This is more difficult to administer. We have lost some ability to determine if many participants are still QBs or have found other jobs or have dropped COBRA. It appears to be more difficult to obtain initial information from some employers as to why the participant experienced a termination—probably due to the fact that employers are finding it more difficult to administratively keep good tracking.”
Jeffrey Strong of Sterling Administrators had this to say: “It is a challenge primarily due to each person having their own “tolling periods.” It is harder to have uniform answers and support.”
Bobbi Kaelin of PayPro Administrators stated: “Well, where can I start with this one? I should first indicate that our involvement in this area is the administration of COBRA – so our responsibilities under the notice may be different than other TPAs. With that said, the individual tolling periods are somewhat challenging, however we’ve been working with our technology partner to utilize the data we already have within our system. This certainly minimizes the much of the workload, however, it does not eliminate it.” Related to the tolling periods, Bobbi continued: “From our perspective, the major obstacle is obtaining/updating/uploading the information on those individuals. We need accurate Information. Maybe as far back as 2019. If we have accurate and full information, it’s then a matter of tracking the tolling period based on the individual’s ‘event’ date.”
Is the outbreak period individual tolling periods something that can be solved with IT programming, or since it’s for such a short-term period, is a programming solution even feasible? What are the options here? Once again, I asked industry experts for their perspective on this…
MaryAnn Wessel stated: “Wex COBRA System to which we migrated in 2020 does a great job in tracking. We are fortunate in that we chose and implemented this new system in 2020 ahead of this tracking requirement—our prior system would have required much more manual tracking.”
Jeffrey Strong felt that this would be handled differently by most administrators. “Due to the short time period, manual is how most will handle this.”
From the perspective of Pay Pro Administrators, Bobbi provided these thoughts: “The individual tolling periods should be able to be tracked and managed by updating/programming the administration system/platforms – while utilizing accurate and complete data. I know we’ve been working with our technology partner on every aspect of ARPA & COBRA, as well as our Flex plan administration, preparing and planning for the requirements. If you’re an employer trying to administer and implement these requirements on your own – sheesh, you’ve got your workload cut out for you.”
All in all, the clear message is that this will NOT be easy. Administrators and employers alike have their hands full with this legislation!
The American Rescue Plan Act of 2021 – Summary Overview
The ARPA was a $1.9 Trillion relief package that extends unemployment insurance benefits, provides $1,400 stimulus payments to qualifying Americans; makes several important health-policy-related changes; provides for vaccine distribution and testing to combat COVID-19 pandemic; makes policy adjustments to the Medicaid program; facilitates health insurance coverage and provides more money for healthcare providers, and makes 2 technical Medicare payment changes. That, of course, if a very brief summary of a massive entitlement package. I will attempt to break them down for you, focusing on what affects the health insurance industry.
Public Health Funding
In general, the ARPA provides for COVID-19 vaccine distribution, testing and contact tracing; support for healthcare workforce expansion and public health initiatives; $7.5 Billion directed to Centers for Disease Control and Prevention to pay for, prepare for, promote, distribute, administer, monitor and track COVID-19 vaccines (see section 2301); allows for $7.66 Billion to state, local and territorial public health departments to hire staff and procure equipment, technology and other supplies to support public health efforts. In addition, it offers $100 Million for Medical Reserve Corps, $800 Million for National Health Service Corps, $200 Million for Nurse Corps, and $330 Million for teaching health centers that operate graduate medical education, allocates $47.8 Billion to continue the implementation of an evidence-based national COVID-19 testing strategy (HHS funding for COVID-19 testing, contract tracing & mitigation activities) (see section 2401), and directs $1.75 Billion to support genomic sequencing and surveillance initiatives.
Emergency Rural Development Grants for Rural Health Care
Section 1002 provides for a provider relief fund for rural providers (some have called it a provider relief look-a-like fund for rural providers). These grants are provided through September 30, 2023, and includes $500 Million for Emergency Development Grants for Rural Healthcare, as well as vaccine distribution, medical supplies, reimbursement for revenue loss, telehealth investments, COVID and other testing in rural settings.
Additional Funding
Section 2101 provides for $500 Million in funding for Department of Labor Worker Protection Activities, including OSHA enforcement of high-risk facilities, including meat plants, agriculture, correctional facilities, and others.
In addition, Section 2302 provides for $1 Billion for Vaccine Confidence Activities (ads, importance, etc.), section 2303 provides for $6.05 Billion for enhancements to the supply chain for COVID-19 vaccines, therapeutics and medical supplies, section 2304 provides for $500 Million for COVID-19 vaccine, therapeutic & device activities at the FDA (current & future treatment, approved & licensed), and section 2501 provides $7.6 Billion for public health workforce activities (including cost-wage benefits, recruiting, hiring, training for contact tracing, case support, nurses, etc.).
Funding for Mental Health & Substance Use Disorders (Public Safety & First Responders) & Behavioral Health Provisions at the Local Level
Included in the ARPA are $1.5 Billion in block grants for Community Health Services (section 2701), $1.5 Billion for block grants for prevention and treatment of substance abuse (Section 2702), $80 Million for mental health & substance abuse disorder training for health care professionals, paraprofessionals and public safety officers (section 2703), $20 Million for an education & awareness campaign encouraging healthy work conditions and use of mental health & substance abuse disorder services by health care professionals (section 2704). There is also $40 Million for grants for health care providers to promote mental health among their health professional workforce (section 2705), and $30 Million for community-based funding for local substance abuse disorder services (section 2706).
The ARPA includes considerable funding at the local level for the behavioral health industry as well. This includes $30 Million for community-based funding for local behavioral health needs (section 2707), grants to state, local, tribal, and territorial governments, tribal organizations, nonprofit community organizations and primary and behavioral health organizations to address community behavioral needs worsened by COVID-19, as well as grants funded to be used for promoting care coordination among local entities; training the mental and behavioral health workforce, relevant stakeholders, and community members; expanding evidence-based integrated models of care, etc.
There are also provisions for those that work with telehealth, including activities that support, enhance, or expand mental and behavioral health preventive and crisis intervention services. In addition, there was an additional $10 Million provided for creating/enhancing a national child traumatic stress network (section 2708), and $30 Million for COVID-19 emergency medical supplies enhancements (section 3101).
I am only touching on some of the provisions in the ARPA. There are many more. I want to turn now, however, to the most important provisions affecting our industry…
COBRA Premium Assistance (Subsidies) – Section 9501
Before I begin this section, I want to provide a shout-out to my benefits attorney, Marilyn Monahan, of Monahan Law Office, because she and I did a joint webinar for my own clients on all of these provisions in March, and quite honestly, when I was confused on some of the provisions, she was there to assist me in understanding them, so Marilyn, you are much appreciated! You are, indeed, a benefits industry rock star! By the time we did our webinar, I was confident I was up to speed on most of the provisions (although I must admit, I still ask her for her assistance from time to time with client questions!).
Under the ARPA, “assistance eligible individuals” (AEIs) are entitled to free COBRA continuation coverage, including the 2% administrative fee, for up to 6 months. The subsidy begins on April 1, 2021 and ends on September 30, 2021. We are at this time awaiting additional guidance from the federal Departments of Labor (DOL) and Treasury (IRS), but we were provided Model Notices and some FAQs on April 7, 2021. These FAQs and Model notices can be found at: https://www.dol.gov/agencies/ebsa/laws-and-regulations/laws/cobra/premium-subsidy.
While we await additional guidance, it’s important to note that some of ARPA’s COBRA subsidy provisions are very similar to the COBRA subsidy provisions included in the American Recovery and Reinvestment Act of 2009 (ARRA). Although ARRA did not provide a 100% subsidy, many of the steps and processes appear to be similar. This has helped industry representatives, particularly carriers and COBRA administrators, in getting a jump on the new but temporary provisions.
“Yes,” stated Marilyn Monahan, “for those provisions in the two bills that are very similar, it is helpful to be able to refer to the 2009 IRS guidance to get an inkling of the direction in which the IRS might go when they issue further guidance on ARPA.”
Jeffrey Strong also felt the steps were similar, and that seems to help the situation. “Yes it has. Before it was 65% and this time it is 100%, but we have something to compare to and an idea on how to manage. The second bite of the apple portion of the law is more of the challenge.”
Bobbi Kaelin responded: “Absolutely! With ARPA the framework and general understanding of government subsidies is already in place. Although the subsidies now & multiple notices are different, most systems were updated at the time so it’s a matter of adjusting the dates/datail for ARPA. Whereas in 2009, we were challenged as everything involved was new: modified platforms, new tracking premium requirements, new notices, education internally and externally – and much more. In addition to our internal operations, we worked closely with our brokers and employer-clients, explaining the subsidy itself, and the new process we implemented to track and/or collect premiums from two sources, provide notices for the tax credit to the employer, and how to reconcile premiums already paid as the subsidy was enacted.”
So, the previous ARRA legislation does seem to take the sting out of the process.
Who is Eligible (AEI)?
Under the ARPA, “assistance eligible individuals” (AEI) are entitled to free COBRA continuation coverage, including the 2% administration fee, for up to 6 months beginning April 1, 2021 (through Sept. 30, 2021). AEIs are those whose eligibility for continuation coverage is due to either an involuntary termination of employment (other than gross misconduct), or a reduction in hours that results in the loss of coverage, and it does not need to be COVID-19 related. This can include individuals who experience a qualifying event (QE) during the subsidy period, prior to the subsidy period currently on COBRA, and who have not exhausted their maximum 18 month of continuation coverage, or individuals who experienced a QE prior to the subsidy period, who did NOT elect COBRA, or allowed their COBRA coverage to lapse, and have not exhausted their maximum 18 months of continuation coverage… meaning they have a new opportunity to enroll and take advantage of the subsidy. I can imagine that this new enrollment opportunity will cause administrative nightmares for COBRA administrators. What kind of internal training, tracking, and cost will this have for COBRA administrators? Is this something that an administrator can absorb, or will it require an increase in COBRA administration costs in general? “Yes,” replied Jeffrey Strong, “very much so! There are a lot of moving parts here now and the COBRA administrator market is working to figure this all out. There is training that is going on as we speak, and as we get more information that is released from the DOL, we are able to refine the tracking and costs needs more. The big question in the market right now is cost and who is going to absorb it. I suspect it will cause an increase in costs in general across the administrator realm.”
Bobbi Kaelin provided her perspective as well: “We have benefitted by our experience under ARRA, so at least we’re not ‘starting from scratch’ in many ways. However, there is certainly an increase in the workload itself in a variety of areas. Internally we’ve spent additional time training and educating our teams; reconciling information that may have been inaccurately reported or not reported at all, updating the system for each client for new/multiple notices for each scenario, and updated our premium payment processes. In all, our workload has increased tremendously. In addition, there are ‘hard costs’ involved such as the preparation, printing, tracking and mailing/remailing costs for every single individual it pertains to.”
Bobbi continued: “I do not believe that this is something any administrator can absorb. At PayPro Administrators, we’re not increasing our general COBRA admin fees. Instead, we will implement temporary and nominal fees in place for the new/modified notices that need to be re-sent/provided. For any ‘new events’ that occur after April, the newest notices are already in place and there are no additional fees. Phew!
For new clients, there will be a temporary fee for those new notices that need to be re-sent and we will require more detailed and accurate information than they are likely used to. For those brand-new COBRA events and their associated notices, we do not anticipate any additional fees. “
MaryAnn Wessel stated: “We have no plans right now to increase our fees, but we always monitor costs by Department.” So, we’ll see how all of this plays out over time.
It’s important to note, however, that someone who terminates employment VOLUNTARILY is not a qualified AEI under the ARPA COBRA Premium Assistance provisions.
Extended Election Period
It’s important to understand that individuals who experienced a QE prior to the subsidy period, whose maximum period of COBRA coverage has not yet ended, and who either did not elect COBRA or allowed their COBRA coverage to lapse, have a NEW OPPORTUNITY to elect COBRA and take advantage of the subsidy. In these situations, the COBRA coverage is prospective; it does not begin before April 1, 2021, and it will not extend beyond the length of their maximum coverage period had they elected COBRA when originally eligible. Under these circumstances, the administrator must provide a revised COBRA election notice within 60 days of April 1 (or by May 31) and AEIs will have 60 days to elect COBRA after they receive the notice.
This is much easier to understand with examples, so I will provide some. These examples were taken from the statute, and modified for easier understanding my Marilyn Monahan (so thanks again, Marilyn!).
COBRA SUBSIDIES – SCENARIOS
Let’s assume that Alpha Corp is located in Pasadena, CA. In 2020, Alpha had 50 employees, so therefore they are subject to Federal COBRA (over 20 employees). Alpha Corp offers full-time employees a fully insured health plan. During 2020, Taylor works full-time for Alpha as a bookkeeper. Taylor elected her company’s health plan and was covered by that plan. In November, 2020, let’s look at some sample scenarios:
- Taylor quits. She is offered COBRA, elects COBRA, and is currently on COBRA. Is she eligible for the COBRA Premium Subsidy provided by ARPA? No, because she is not an AEI as she voluntarily terminated.
- Taylor is terminated for cause. Taylor is offered COBRA, elects COBRA, and is currently out on COBRA. In this scenario, Taylor is considered an AEI, and eligible for a subsidy beginning April 1, 2021, through September 30, 2021.
- Taylor is terminated for cause. She is offered COBRA, elected COBRA, and then let her COBRA coverage lapse at the end of January, 2021. Taylor must be provided a new COBRA Election Form, and be given the opportunity to elect COBRA again. If she elects COBRA again, effective April 1, 2021, COBRA premiums will be subsidized, through September, 2021.
- Taylor is laid off because Alpha’s business is down due to COVID-19. Taylor is offered COBRA but did not elect COBRA. She will now be given a new opportunity to enroll prospectively. Effective April 1, 2021, the premiums will be subsidized through September, 2021.
Who is Not Eligible for the Subsidy?
An AEI is not eligible for the subsidy as of the first date that the individual is eligible for coverage under any other group health plan (other than coverage consisting only of excepted benefits, coverage under a health FSA, or coverage under a QSEHRA) or Medicare. If an AEI becomes ineligible for the subsidy because the AEI becomes eligible for other coverage or Medicare, the AEI must notify the group health plan. Failure to provide the notice to the group health plan could subject the AEI to an IRS penalty.
Types of Coverage Eligible for Premium Subsidy
All group health plans subject to COBRA (under ERISA, IRC, or Public Health Service Act (PHSA)), or coverage “under a State program that provides comparable continuation coverage” (in other words, “comparable” state mini-COBRA laws), are eligible for the premium subsidy. This includes (we assume at this point, but are awaiting guidance) state and local government plans subject to the Public Health Services Act (PHSA). We assume at this time that this will include dental, vision, and HRAs, as these were allowed during the ARRA subsidy starting in 2009. Premium subsidy eligible plans do not include a health flexible spending arrangement. This was spelled out in the statute.
One question that will likely come up is does the subsidy apply to Cal-COBRA or other state mini-COBRA laws? At this time, we assume that it applies to employers with 2-19 employees, but we are awaiting further guidance.
The ARPA, simply stated, says that continuation coverage provided “under a State program that provides comparable continuation coverage” to COBRA will also be eligible for the subsidy, although we need a definition of “comparable,” which we assume will be covered in guidance. Given what has been provided to us to date, we assume that certain state mini-COBRA laws (such as Cal-COBRA for those working for employers with 2-19 employees) should be eligible for the premium subsidy. Similar language was included in ARRA in 2009 regarding subsidies, but again, we are awaiting guidance.
When can the subsidy end early? Under the ARPA, coverage is generally good for up to 6 months, April 1, 2021 through Sept. 30, 2021. However, the subsidy can end early if the AEI’s 18-month continuation coverage period ends prior to that date, or if the AEI becomes eligible for coverage under another group health plan (other than coverage that is only excepted benefits, a health FSA, or a QSEHRA) or Medicare.
Premium Payment Responsibility & Tax Credits
If the AEI does not pay the COBRA premium, who is responsible for payment? In a multiemployer plan, the plan is responsible. In a plan that is either subject to COBRA under ERISA, the IRC, or the PHSA, or is self-funded, the employer. If one of these circumstances does not apply, such as a fully insured group plan that is subject to state continuation coverage laws, the insurer. We assume this will be the case with mini-COBRA participants as well as church plans, but again, we are awaiting further guidance.
Basically, in a fully insured arrangement, the employer cuts the premium check to the insurance carrier (the same as they would an active employee and dependents), but later gets a tax credit. In a self-funded plan, the employer will not receive the check from the COBRA participant, but will continue to pay the COBRA premiums. Self-funded employers, too, will receive a tax credit to reimburse them for the cost of COBRA coverage.
The employer, insurer, or plan is entitled to reimbursement of the premium in the form of a federal tax credit against certain quarterly payroll taxes for the reimbursement of the COBRA premiums. These payroll tax credits are generally in the form of Medicare taxes. If the credit, however, exceeds the payroll tax liability, a refund will be available. You should be aware, however, that there are restrictions on “double-dipping”; ie if the employer is receiving a tax credit for qualified health plan expenses because the employer is providing paid leave under the FFCRA (which is of course voluntary, as the FFCRA mandates ended on December 31, 2020, but the CAA allowed for an employer to voluntarily continue providing paid leave into 2021), the employer cannot also take this tax credit. It is advisable that you advise your employer clients to seek the advice of their tax and/or legal counsel regarding these circumstances before they take tax credits, to be sure they are complying with the provisions of each of these laws. The “how to” do this “mechanics” should be forthcoming in guidance.
Reimbursement to AEIs if Paid During Subsidy Period
Let’s say that the AEI goes ahead and pays the premium during this 6-month subsidy period, even though it should have been subsidized. The statute states that the employer, insurer or plan must reimburse the AEI within 60 days. Is this tracking of who pays or does not pay a responsibility of the employer/plan sponsor or the contracted COBRA administrator? I felt this would be best answered by an attorney, so I asked Marilyn to explain: “When the employer sends out the revised COBRA notices, the employer should attach another model form issued by the DOL—the ‘Summary of the COBRA Premium Assistance Provisions under the American Rescue Plan Act of 2021.’ The Summary includes a form an AEI can fill out to notify the employer that the individual believes they are eligible for the subsidy. According to the DOL’s FAQs, ‘Accordingly, plans and issuers should not collect premium payments from Assistance Eligible Individuals and subsequently require them to seek reimbursement of the premiums for periods of coverage beginning on or after April 1, 2021, and preceding the date on which an employer sends an election notice, if an individual has made an appropriate request for such treatment.’ It would also be appropriate for the employer to identify—and track—those who are eligible for the subsidy and refund payments when appropriate.”
Bobbi Kaelin provided her perspective… “Ultimately, it’s the responsibility of the employer/plan sponsor. However, here at PayPro Administrators, we will work with the plan sponsor to track/report premiums that we have received and remitted to either the carriers directly, or to the plan sponsor. The responsibility for reimbursing the AEI, at this point, will be determined between the carrier, plan sponsor, and the Administrator (if the administrator collects the entire premiums and remits it directly to the carrier under a separate COBRA invoice).”
New Notice Requirements
There are several new notice requirements for COBRA under the ARPA. In general, new notice requirements include the following:
- Modify existing COBRA election notice to send to those who have a qualifying event on or after April 1, 2021 to inform them that they are eligible for a premium subsidy
- Modify existing COBRA election notice to send to those who already have ha a qualifying event but are now entitled to an extended election period (this must be sent by May 31, 2021)
- Modify existing COBRA election notice to notify AEIs of the Plan Enrollment Option, if the employer offers this (more information on this to follow)
- Create a new notice to inform those whose subsidy is ending between 45 and 15 days of the end of the subsidy (so approximately between August 15 – September 15 , 2021 if the subsidy is ending on September 30, 2021)
New Model Notices were released on April 7, 2021 and can be found at: https://www.dol.gov/agencies/ebsa/laws-and-regulations/laws/cobra/premium-subsidy. They are available in pdf or word formats. The FAQs can be found at: https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/faqs/cobra-premium-assistance-under-arp.pdf.
What must employer plan sponsors and/or COBRA administrators be prepared to do before these notices can go out? “They will need to figure out a delivery mechanism, electronic, mail…etc. Then they need to figure out who needs to get the notices,” stated Jeffrey Strong.
Bobbi Kaelin also commented. “First communicate with your TPA. You’ll want to make sure your TPA is responsible for sending on the notices on behalf of the plan sponsor. The TPA may request that you review or update information in order to provide the notices to applicable individuals. Additional information may be requested by the TPA as well. Confirm or inform your TPA if you wish to allow eligible individuals to enroll in a less expensive plan.”
“Additionally,” stated Bobbi, “for both plan sponsors and TPAs, be prepared to receive questions from sponsors, employees, beneficiaries and those that question why they are not receiving a notice of COBRA coverage at no cost. Plan sponsors and TPAs need to be patient – this is new and quite cumbersome. And eventually more notices will need to be sent out indicating the subsidy has expired. But before those notices are event prepared – be patient – everything may change again! Under the ARRA in 2009, the original subsidy period was extended from 9 months to 18 months – without much advance notice. The same could occur with ARPA.” Of course, we are all very familiar with that possibility, as it seems to be happening a lot lately!
Is this an additional cost for administrators to absorb and is this something that you feel most COBRA administrators will have to charge additional fees for? “This is the $10,000 question, and currently we do not have much information here; we are getting information updates about every couple of days,” commented Jeffrey Strong. “As well as for costs, the COBRA administrator market is reviewing the capital needs to meet the notice requirements and is figuring out what it is, and who will pay. So more to come here.”
“Certain tasks, functions or services might be absorbed, however there are certain costs that most TPAs shouldn’t be expected to absorb,” replied Bobbi Kaelin. “I would assume that most TPAs would absorb the costs for system upgrades and IT programming, however, hard costs such as re-mailing notices and then additional notices, will likely be passed on to the plan sponsor. At PayPro Administrators, we do not intend to have any additional fees beyond the newly required temporary notice mailings.”
These are important questions to ask your administrators now, not later… Inquire about costs and budget appropriately.
Employers should start working with their internal HR departments and COBRA administrators to start preparing for the distribution of the new notices, etc. There will also be tracking to do for anyone on COBRA since November, 2019 (going back 18 months), to give another opportunity to enroll, add back on, receive subsidies, etc. So the work is far from over!
Notices Scenarios
I’ll provide a couple of scenarios, taken from the statute, but again modified slightly and expanded upon by our benefits attorney, Marilyn Monahan, to try to simplify the notice requirements, as it’s often easier to understand with examples.
Example One:
Anna was terminated for cause and her COBRA coverage would have started on November 1, 2019, but Anna did not elect COBRA. Because Anna has not yet exhausted her 18 months of COBRA coverage, she must be offered the opportunity to enroll effective April 1, 2021, and receive 1 month of subsidized COBRA coverage (as the 18 months would expire on April 30, 2021, with an effective date of November 1, 2019), assuming she is not eligible for other group coverage or Medicare. Anna would receive an updated COBRA election (general) notice, and she would also receive a notice that the subsidy will end on April 30, 2021.
So, in essence, again, the latest you have to go back is to November, 2019, to cover the 18 month COBRA period for anyone. So, employers need to look at all terminations from November, 2019 to present, to offer new opportunities to enroll, etc.
Example Two:
Andy was terminated for cause and his COBRA coverage would have started on January 1, 2020, but Andy did not elect COBRA. Because Andy has not yet exhausted his 18 months of COBRA coverage, he must be offered the opportunity to enroll effective April 1, 2021, and receive 3 months of subsidized COBRA coverage (as the 18 months would expire on June 30, 2021, with an effective date of January 1, 2020), assuming he is not eligible for other group coverage or Medicare. Andy would receive an updated COBRA election (general) notice, and he would also receive a notice that the subsidy will end on June 30, 2021.
Example Three:
Derek reduced hours worked starting on January 1, 2021, for personal reasons. This results in a loss of coverage effective January 1, 2021, which is a COBRA qualifying event. Derek elects COBRA. Effective April 1, 2021, Derek is entitled to 6 months of subsidized coverage as long as he’s not eligible for another group health plan or Medicare. Derek will receive an updated COBRA election notice explaining the subsidy.
In this example, it’s important to note that a reduction in hours does not have to be involuntary. Even voluntary reduction in hours could be subsidy-eligible, unless further guidance disallows that.
Now, if you assume instead that Derek’s COBRA Qualifying Event takes effect April 1, 2021, the same result will occur as above; 6 months of subsidized COBRA premiums.
Let’s say however that before receiving a new COBRA notice, Derek pays for the April premium for fully insured coverage. If this is the case, the employer would be required to reimburse the COBRA premium back to Derek within 60 days.
Now let’s assume that Derek’s open enrollment date was January 1, 2021. Derek pays the January premium, then stops paying premiums. Under ARPA, Derek will be given an updated COBRA election notice, and he can re-start COBRA with an effective date of April 1, 2021, and it will be subsidized for 6 months. Under the Outbreak Period rules (covered earlier in this article), Derek has up to one year to pay for February and March, 2021 premiums, if Derek wants coverage in those months. But let’s say he had no claims… He elects COBRA coverage effective April 1, so there is a gap in coverage… Starting on April 1 he gets a subsidy for 6 months, so if he had no claims in February or March, he could simply not pay those back premiums, and let the effective date be April 1, 2021. So, I’m sure you picked up on this right away… The outbreak period changes plus the subsidy rules under ARPA allows for adverse selection, so that COBRA beneficiaries can elect to have coverage in the months in which they have claims and/or have subsidized coverage, and skip payment in the months of February and March, in this scenario, if there were no claims during those months (assuming new guidance doesn’t change that).
Indeed, the Registered Health Underwriter (RHU) and former TPA executive in me gets a bit cross-eyed when I work through these scenarios!
Scenario – Timeframe Extensions and COBRA Subsidies
Here is another example to help you to understand the timeframe extensions and COBRA subsidies.
Tim was involuntarily terminated effective November 30, 2020. His health coverage also ended 11/30/20. He was offered COBRA and under typical COBRA rules, Tim has 60 days to elect COBRA. Tim did not elect COBRA. Tim is not currently eligible for another group plan or Medicare. Under the timeframe extensions, Tim will have until January 30, 2022 to elect COBRA. Under the ARPA COBRA subsidies, Tim must be provided a new COBRA election notice explaining the COBRA subsidies and the extended election period. He will have 60 days from that notice to elect COBRA, effective April 1, 2021. Tim’s maximum period of COBRA coverage is 18 months, or through May 31, 2022.
This means that there will be a gap in coverage unless Tim goes back and pay the COBRA premiums, which he has one year to do. He will still be eligible for subsidized coverage for the period April 1, 2021 through September 30, 2021.
Confused yet?
Plan Enrollment Option – Optional
Employers may, but are not required, to offer the AEIs the opportunity to change their coverage from the plan they are currently enrolled in to another one offered by the employer. In such case, the cost of the coverage in the alternative plan cannot exceed the cost of the current plan the AEI is enrolled in, and the coverage must be offered to similarly-situated, active employees.
The alternative coverage cannot be only excepted benefits, a QSEHRA, or a health FSA. The employer must provide the notice, and the information about the option should be included in the updated COBRA election notices. AEIs then have 90 days to elect the coverage change.
This option would work in scenarios where for example, someone wants to change from a PPO to an HMO if there are better benefits, for example, within the HMO. To do this, the plans must cost the same or less than the one they are covered in.
Are There Potential Penalties?
There was not much guidance in ARPA related to penalties, however we have pre-existing penalties for COBRA under ERISA and the Internal Revenue Code (IRC). Under these pre-existing rules, failure to comply could result in ineligibility for tax credits, a per day penalty for failure to provide a COBRA notices under ERISA (does not apply to government employers), and a per day excise tax under the IRC for failure to comply with COBRA. In addition, failure to comply can result in participant complaints potentially followed by lawsuits under ERISA or PHSA, as well as potential audits by the DOL or IRS.
If a plan participant fails to notify the group health plan of ineligibility for a subsidy, it could result in an IRS penalty of $250 or 110% of the subsidy if it was deemed intentional.
Marketplace Advanced Premium Tax Credit (Section 9661)
Another important change under the ARPA is additional funding for marketplace advanced premium tax credits, or APTC. Under the ACA, if you purchase an individual health policy from a Marketplace (such as Covered California or the federal marketplace), you may be eligible for a premium tax credit to help pay for the cost of that coverage, depending on your household income.
For 2021 and 2022, the ARPA is expanding eligibility for those tax credits. CMS announced additional credits available in the federal marketplace starting April 1, 2021 (check with your state’s marketplace to determine effective dates).
In general, the additional subsidies in the Marketplace will be based on the percentage of the Federal Poverty Level (FPL).
Premiums for consumers after these new savings will decrease, on average, by $50 per person per month, or $85 per policy per month. It is reported that four out of five enrollees will be able to find a plan for $10 or less per month after premium tax credits, and over 50% will be able to find a Silver Plan for $10 or less per month. No one will pay more than 8.5% of their household income towards the cost of a benchmark plan, or a less expensive plan.
Covered California, for example, in a press release dated March 18, 2021, stated that an estimated 3 million Californians are among the 25 million Americans who stand to benefit from the new and expanded subsidies, which will lower premium costs and make health care coverage more affordable than ever. According to this press release, Covered California will open a new special enrollment period on April 12, for May 1 coverage for the estimated 1.2 million uninsured Californians who are eligible, as well as the 430,000 people current insured off-exchange who will qualify for the new financial help. In addition, says the press release, most of Covered California’s currently enrolled consumers will see an average of $119 per household in monthly premium savings that will automatically start in May.
Covered California, as well as other Marketplaces, have a major marketing campaign to get more people covered during this special period.
According to Covered California, consumers who earn less than $32,000 a year for an individual will be able to either get a benchmark Silver plan for between $50 and $60 per month and virtually would be able to get a Bronze plan for $1 per month. People currently insured off-exchange will now be eligible for subsidies within the exchange. No one will pay more than 8.5% of their income on health premiums. An individual with income $51k+ per year currently pays (on Covered California plans) an average of $1,100/month for coverage. Under expanded subsidies with ARPA, their monthly premium drops to an average of $508 – a savings of nearly $600/month, and a total of nearly $12,000 between this May and the end of 2022.
State Small Business Credit Initiative (Section 3301)
The ARPA added $10 billion for additional assistance for small business, including $1.5 billion for socially and economically disadvantaged individuals, and $500 million to very small businesses with fewer than 10 employees, which may include independent contractors and sole proprietors.
PPP Modifications (Section 5501)
An additional $7.25 Billion has been provided for new funds for PPP Programs, which opens up additional funding for new groups, including eligibility of certain non-profit entities for coverage loans.
Support for Restaurants (Section 5003)
The ARPA provided for a new “Restaurant Revitalization Fund.” Under this funding, the SBA will administer grants to be awarded on or after 60 days of enactment of the ARPA. It provides for $28.6 Billion in grants, which will include $5 Billion for entities with gross receipts during 20219 or not more than $500,000, and $23.6 Billion for eligible entities of different sizes based on annual gross receipts.
The Covered Period is between February 15, 2020 and December 31, 2021. An eligible entity includes a restaurant, food stand, food truck, food cart, caterer, saloon, inn, tavern, bar, lounge, brewpub, tasting room, or taproom. It does specify that entities with more than 20 locations are NOT ELIGIBLE (whether or not those locations do business under the same or multiple names), and that publicly traded companies are NOT ELIGIBLE.
During the first 21 days, priority will be given to small business owned and controlled by women, veterans, or socially and economically disadvantaged small business concerns.
Pandemic Unemployment Assistance (Section 9011)
The ARPA provides for extensions of previous provisions related to unemployment, including individuals who are self-employed, seeking part-time employment, or who otherwise would not qualify for regular unemployment compensation. It expires Sept 6, 2021, and increases the number of eligible weeks from 50 to 79 weeks in many cases. For all others, it allows for 24 weeks to 53 weeks at $300 per week.
Included in the unemployment assistance is unemployment for a state with no waiting period and the suspension of tax on a portion of unemployment compensation for taxable years beginning in 2020.
The first $10,200 in unemployment benefits will not be included in gross income for taxpayer with gross income less than $150,000.
Dependent FSAs (Section 9632)
For the 2021 tax year, the amount that can be contributed to an employer-sponsored dependent care assistance program (aka a DCAP or dependent care FSA) is increased from $5,000 to $10,500, or $5,250 if married and filing separately. This provision may be adopted retroactively to 1/1/2021, so long as a written cafeteria plan amendment is adopted no later than the last day of the plan year, and the plan is administered according to the change in the interim.
If a plan sponsor decides to take advantage of the DCAP provision increases, what are the requirements for the plan sponsor if they want to do this (ie plan amendment)? “An employer that wishes to increase the contribution limits for its DCAP will undoubtedly have to amend the terms of its written cafeteria plan document,” stated Marilyn Monahan. “The amendment must be adopted no later than the last day of the plan year to which the amendment is effective and, in the interim, the employer must administer the plan consistent with the amendment. Any such changes should also be communicated to employees.”
Tax Credit for Paid Sick Leave (Section 3131)
Under the ARPA provisions, employers may be eligible for a 100% credit for qualified sick leave wages. Employers are NOT required to provide the leave, but if they do, they can continue to receive tax credits for the period April 1, 2021 through September 30, 2021. Paid leave benefits of up to $200 are available for reasons (from prior FFCRA class and article) 4, 5, 6 or newly added reasons for leaves, and up to $511 for reasons 1, 2 or 3 of the FFCRA provisions. There is, however, a limit of 10 days for the leaves.
Remember that there was a hard stop for FFCRA benefits on December 31, 2020, but a voluntary extension was then available through March 31, 2021. If employers elected this voluntary extension, they are now entitled to these additional tax credits.
Tax Credit for Paid Family Leave (Section 3132)
For paid family leave, credit is now available under the ARPA for 100% credit, for time period April 1, 2021 through September 30, 2021, for up to $200 with no more than $12,000 across all quarters (up from $10,000). These tax credits apply to all eligible reasons under FFCRA.
Leave Rules
Under these leave rules, credit can be claimed on the employer’s quarterly taxes, and excesses are refundable, or employers may claim advance credit and can include qualified health plan expenses. All of the same administrative rules from FFCRA apply as to eligible employees and available hours under these provisions. Governmental entities, however, are not eligible to claim this credit.
Credits cannot be applied if an employer is claiming under the PPP Loans, Restaurant Revitalization Grants or Economic Aid to Hard-Hit Small Businesses, Non-Profit Organizations, and Venues Act Grants. As stated above, there is no double-dipping allowed….
Conclusion – This Article is Dedicated to The Industry
In conclusion, I’m pretty sure that your heads are spinning right now and that you probably had to set this article down a few times before you continued. So, I ask you… How do you think this has been for the administrators and industry personnel dealing with all of this? So for all of you, again, this article is dedicated to you, and to all of the hard work you put into all of these new laws. Our hats are off to you! THANK YOU!!!!
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Author’s Note: I’d like to once again thank Marilyn Monahan of Monahan Law Office for her assistance with this article and my previous client webinars on this topic. I’d also like to thank MaryAnn Wessel, Jeffrey Strong and Bobbi Kaelin for their assistance and cooperation with this article.
Disclaimer: The information provided in this article does not constitute legal or tax advice. This article only provides a summary of certain complex and always evolving laws and regulations. Readers should consult their legal counsel for guidance on the application and implementation of the many federal and state laws that impact employee benefit plans and the workplace, including the topics discussed in this article.
Reference Sources: Bill Text, HR 1319, Webinar Materials, The American Rescue Plan Act of 2021 and Outbreak Period Updates, March 30, 2021, by Dorothy Cociu and Marilyn Monahan (Monahan Law Office).
