COBRA Subsidy: Alerts and FAQs for Employers

Employers everywhere need to prepare for the COBRA subsidy ASAP. Beyond facilitating a 102% COBRA premium subsidy for eligible former employees, they will also need to provide all applicable notices. HR and payroll experts warn that employers should not ignore this COBRA premium subsidy or its notice requirements. Fines will be steep for those that are not in compliance. Below are questions and answers from MP’s HR services experts that will help employers gain a better understanding of what they need to do to stay in compliance for this subsidized COBRA coverage program

Eligibility for the COBRA Subsidy

Q: Does this affect a self-funded plan? Are fully funded and self-funded plans are subject to this premium assistance

A: Yes. Employers that are subject to COBRA or Mini-COBRA laws and have former employees that are eligible for the COBRA subsidy must send notices to these employees. If these employees are eligible for coverage, they must offer it.

Q: If an employee had a qualifying event (involuntary termination or involuntary reduction in hours), but they did not take COBRA due to the cost, are they eligible for the subsidy?

A: Yes. This is the prime example of a person who should receive the new 60-day election notice. If the employer had already sent them the standard COBRA information when they originally became eligible for COBRA and the employee decline coverage, they now need to send them the 60-day election notice, which advises them of the subsidy program.

Q: Is there guidance on whether the COBRA subsidy is applicable to employees that are terminated after they are unable to return from FMLA leave?

A: HR professionals are still waiting for guidance that would apply to this example. To play it safe, the employer should consider the former employee eligible.

Q: If somebody was terminated during the pandemic and declined COBRA at the time (instead they obtained individual coverage via the federal health exchange or the marketplace), are they qualified for the COBRA subsidy?

A: Yes. Having an individual plan from a state or federal exchange does not count as disqualifying coverage for COBRA subsidy. Since the COBRA subsidy notices and the guidance from the Department of Labor did not come out until early April, a former employee may have already paid for April. The former employee should work with their respective state exchange to see if they can get a future credit or a refund if they’re able to get on their former employer’s health insurance plan as of April. Of course, those will be on a case-by-case basis. Former employees can drop marketplace coverage if they’re otherwise eligible for subsidized COBRA. At the end of COBRA premium assistance or COBRA subsidies, this will be considered a special enrollment period, or an ACP. It will allow individuals to go back to their state or federal health care marketplace and obtain coverage again. This is because they’ve essentially lost coverage as the subsidy ends.

Q: Will the employer need to cover dependents, as well as employees?

A: Yes. If the employee was on a family plan, or an employee, spouse, or an employee plus children level of coverage, employers must offer them continuation of whatever level of plan they were on before. The subsidy would apply to 100 percent of that premium, regardless of the level.

Q: If an employee voluntarily resigns to care for a child due to loss of daycare (hence COVID-related), is the employer required to send a notice?

A: No. If an employee voluntarily resigned, they are not eligible for the COBRA subsidy.

Q: If an employee was fired before they were eligible for benefits (for example, fired within the first 60 days), are they eligible?

A: No. If they were not eligible for benefits at the time of their termination, then there’s no plan to continue. If the employees were not on a plan, they cannot continue a plan. This is applicable for new employees or for someone who did not elect coverage under the employer’s offering.

Q: If employers voluntarily elected to transfer to part-time and lost benefits eligibility, are they eligible for the COBRA subsidy?

A: No.

Q: A former employee was terminated due to a reduction in workforce related to a merger. It was not COVID-related. Will the employee be eligible for the subsidy?

A: Yes. If the employee were involuntarily terminated or involuntarily had a reduction in hours, they would be eligible for the subsidy. If the employee were terminated for gross misconduct, they would not be eligible. The reason for the involuntary termination, does not need to be related to the pandemic. The former employee will be eligible for this subsidy, provided that their termination was not voluntary.

Q: A former employee was laid off in March due to a shutdown. They were then offered their job back in June, but declined and quit. Are they eligible for the COBRA subsidy?

A: No, especially if the employer has it in writing that the employee declined the job offer and resigned. If the former employee received a job offer and declined it, this disqualifies them.

Q: If someone was laid off for COVID-related reasons, rehired and worked for a period of time, then resigned from their position, are they eligible for the subsidy?

A: No. If chronologically, the last record is of their resignation, they are not eligible.

Q: How is reduction in hours defined?

A: For the COBRA subsidy program, a reduction in hours is defined as a circumstance when someone had their hours are reduced to the extent that they lost their eligibility for the employer’s group health plan. Here’s an example. For a large employer, per the ACA, any worker who averages 30 or more hours per week is eligible for their insurance plan. If their status is changed permanently from a 35-hour week to a 25-hour week employee, they would lose their eligibility to be on the group health plan. Reduction in hours that brings the employee below the hours of eligibility for the health plan is a triggering event to be offered COBRA. Therefore, the employee should be offered the COBRA subsidy.

Q: What are the criteria for gross misconduct?

A: Currently, we’re still awaiting guidance from the Department of Labor. We know that workplace violence qualifies, as does sexual harassment or theft. There will certainly be many areas that are in the gray. The forthcoming guidance will be helpful for these situations.

Costs and Reimbursements for the COBRA Subsidy

Q: How will a small business that is subject to Mini-COBRA fund the subsidy?

A: Insurance carriers will be funding these subsidies.

Q: Since employers need to do a lot of work for the COBRA subsidy, can they at least charge the COBRA subsidy recipient the two percent fee?

A: Employers cannot charge employees any cost for this COBRA coverage.

Q: If a former employee has pre-paid for their COBRA coverage, what steps should be taken next?

A: Employers should contact the third-party. They will help facilitate any refunds due to that employee.

Q: Can an employee add more benefits to COBRA (such as dental or vision) if they currently only have medical?

A: No. The idea of COBRA, whether it’s during this time or any time throughout recent history, is that “C” in COBRA stands for continuation. The employee can continue coverage of those benefits they had been eligible for while employed. Employees cannot add coverages that they were not participating in while employed. A COBRA-eligible employee who had a family plan in the past could choose coverage for just themselves rather than the whole family. For a business that either had to terminate their entire group health plan or went out of business and terminated the health plan, then COBRA is a moot point. There is no plan for former employees to be on.

Q: How will employers be reimbursed for the subsidies?

A: There is some guidance forthcoming from the IRS. Essentially, it should run similarly to the reimbursements for FMLA leave or FFCRA leave. There will be a section on the quarterly 941 payroll tax filings. In that space, employers can claim the credit based on their COBRA expenses. For MP clients who are using iSolved, we are making some updates to allow for entry of these COBRA subsidies as a tax credit.