Alert: Model Notices for the COBRA Subsidy Have Been Released

The Department of Labor (DOL) has released model notices that employers should use to alert their former employees about the COBRA subsidy for 2021.  From April 1, 2021 extending to September 30, 2021, any employers with plans subject to COBRA continuation will need to offer a 100% subsidy for up to a six-month period.  To be eligible, workers need to have lost their coverage for one of two reasons: they were involuntarily terminated, or had a reduction in hours that dropped them below benefits eligibility.  This provision also extends the election period for eligible workers who didn’t initially elect to receive COBRA or let it lapse. (Subsidized COBRA coverage will only last the usual 18 months after coverage was lost.)  HR providers like MP want employers to also keep in mind that, as per usual COBRA laws, coverage can be extended for a second qualifying event (with coverage totaling up to 36 months).   

Here are the five things MP’s HR services team says that employers need to know to stay in compliance: 

4 Things Employers Need to Know About the Model Notices and the 2021 COBRA Subsidy 

1. What are the notice requirements for employers? As per usual COBRA regulations, within 14 days of the qualifying event, employers must give the employee and beneficiaries of their individual rights notice that they can elect COBRA continuation coverage.  Employers that are subject to COBRA laws will need to give their employees and former employees notice of the subsidy, the extended election period for COBRA coverage, and the expiration of the subsidy.  MP’s HR consulting experts suggest that employers use the model notices that the DOL has issued here.  If employers have a third-party administrator (TPA) for their COBRA coverage, they should confirm that the TPA will send the required notices to eligible workers.  They will likely need to designate a list of eligible workers to receive the required notices.   

2. Which employers does the COBRA subsidy apply to? This will apply to employers that either offer a group health plan or a self-funded plan that is subject to COBRA and state continuation (not including health flexible spending accounts (FSA)).  Employers are subject to COBRA if they:
   •  Offer a private-sector group health plan that is maintained by the employers
   • Have at least 20 employees (including full and part-time workers) on no more than 50% of a typical business day in the previous calendar year
   • Qualify under their state “mini-COBRA” laws

3. Which employees will be eligible for the COBRA subsidy? Workers who are eligible for the COBRA subsidy must: 
   • Qualify as a beneficiary with a qualifying event (as defined by COBRA or state continuation) that occurred November 1, 2019 or after
   • Have elected COBRA coverage or
   • Have declined or discontinued COBRA coverage, but elected within 60 days of receipt of the new COBRA extension notice
   • Not have received other offers of employer-sponsored health insurance or Medicare coverage
   • Not have voluntarily resigned from their role

4. How does the COBRA subsidy work?  Employers, insurers, and multiemployer plan sponsors will cover the complete cost of an eligible employee’s COBRA premium (and the 2% administrative fee).  They will be reimbursed though a refundable payroll tax credit against the Section 3111(b) Medicare tax.  HR and payroll experts point out that if an employer’s COBRA premium costs for eligible subsidy plan participants exceed their Medicare payroll tax liability, they can use forthcoming guidance from the IRS and DOL to file for a direct payment of the credit amount that remains.