A Guide To Getting COBRA Subsidies Right The 1st Time

By Emily Brill
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Law360 (March 19, 2021, 12:50 PM EDT) -- Now that the Biden administration is fully subsidizing laid-off workers' COBRA premiums for six months, employers must identify and contact ex-employees who qualify for this free coverage, while adjusting any existing health care arrangements they'd made for former workers.

Here, Law360 offers a guide to connecting ex-workers with the subsidies — and employers with the associated tax credits — without a hitch.

Identify Eligible Workers

The subsidies, authorized by this month's coronavirus relief law, allow Americans who've recently lost their jobs to stay on their workplaces' health plans for free for six months — April 1 till Sept. 30 — within the 18-month period of extended coverage offered under the Consolidated Omnibus Budget Reconciliation Act or COBRA.

The subsidies are available to anyone who's lost a job or had to work part-time since Nov. 1, 2019, as long as that person didn't leave the company or reduce hours voluntarily, or qualify for Medicare or another group health plan after losing company-provided coverage.

Employers looking to comply with the American Rescue Plan's COBRA provisions must first identify all current and former workers who may qualify, in order to notify them that the subsidies are available. Not all those workers may have signed up for COBRA coverage — which is often expensive — even though they qualified for it, attorneys said.

Part of determining who's eligible will involve determining who left the company voluntarily and who left against their will. Employers don't always record this, since it doesn't matter for COBRA eligibility — but it does matter for subsidy eligibility.

"You're going to have to have a mechanism for figuring out if people were involuntarily terminated or if they weren't," said Timothy J. Stanton, an employee benefits attorney and shareholder at Ogletree Deakins Nash Smoak & Stewart PC. "That's not typically something employers track, because the voluntary/involuntary distinction hasn't mattered when it comes to health benefits before."

Notify Them

After an employer has identified eligible workers and ex-workers, the next step is to notify them within 60 days of April 1. This is a big one, because failure to comply with notification requirements carries legal risk for employers in their capacity as health plan sponsors, benefits attorneys say.

"This is probably going to be the thing that we as plan sponsors are worried about the most," said Vanessa A. Scott, an employee benefits partner at Eversheds Sutherland. "We really want to pay attention to who tells who what and when."

The U.S. Department of Labor hasn't yet issued model notices outlining its preferred method of telling eligible Americans about the subsidies. Stanton recommended waiting until those model notices are out to notify people.

"There's a temptation to explain everything to employees right now. It might be smarter to wait until there's model language from the government, just so we don't get ahead of ourselves or get something wrong," Stanton said.

He also recommended that employers approach the task of notifying people with patience, care and caution, as communicating legal changes is often difficult, and workers will probably have questions.

"It would be smart to put some effort into explaining these things, and being ready to help people with any questions," Stanton said.

Secure Tax Credits

Employers who offer the subsidies can claim a credit against their Medicare tax obligations in exchange for doing so. The tax credit is refundable, which means that if the credit is larger than the tax obligations, the employer can keep the difference.

"This looks like a pretty favorable tax credit arrangement for employers," Stanton said.

To ensure that employers get the most favorable tax credit possible, they may have to adjust any COBRA arrangements made when the pandemic arrived, said Paul M. Hamburger, the co-chair of Proskauer Rose LLP's employee benefits and executive compensation practice group. Employers may have to do this if they bankrolled portions of workers' COBRA premiums after pandemic-related layoffs, which many did, he said.

If an employer agreed to pay half of a laid-off worker's $1,000 monthly COBRA premium as part of his severance arrangement, for example, the company may have to set the worker's contribution at $1,000 rather than $500 for April to September, so it can get the full premium subsidized by the government rather than half of it, Hamburger said.

Coordination Is Key

It's understandable for employers to be intimidated by the American Rescue Plan's COBRA requirements, considering these mandates arrived right after the Department of Labor extended certain COBRA election deadlines, further complicating already complex compliance burdens.

A good first step for employers looking to take some of the pressure off is to reach out to their own management teams and the companies they work with to administer COBRA benefits, attorneys advised.

"I think the biggest tip that I can give people is coordination," Hamburger said. "There are a lot of different entities involved. There's the employer, there are third-party administrators, there are insurance companies, potentially. Even within the company — there's [human resources], legal, tax. All of those areas are going to be hit by the need to understand these rules."

--Editing by Robert Rudinger and Vincent Sherry. 

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