The Department of Labor recently released sample notices to enable Plan Sponsors and Plan Administrators to meet their disclosure obligations under the COBRA temporary grant added by the American Rescue Plan Act of 2021 effective April 1, 2021 (discussed here) . At the same time, the DOL issued a series of frequently asked questions about the temporary subsidy. While the FAQs are primarily aimed at individuals, they clarify some administrative questions that were not known from the law. In this Benefits Brief we will summarize the key explanations of the DOL and highlight the key areas where further guidance is needed.
WELCOME DECLARATIONS
Reduction of working hours. Termination of employment resulting in loss of coverage must be “involuntary” in order to qualify for the grant. In contrast, a reduction in working hours that leads to a loss of coverage is independent of whether the reduction is voluntary or involuntary.
Non-federal COBRA plans. The FAQs confirm that the new rules do not change any government legal requirements for plans subject to government “mini-COBRA” regulations. You also acknowledge that the new special enrollment period does not apply to plans subject to state “Mini-COBRA” laws unless state law allows special enrollment. In addition, under a state “mini-COBRA” law, a qualified beneficiary may choose a lower cost option if the plan allows it. The sample notices issued by DOL contain a notice for plans that are subject to a state “Mini-COBRA” law.
60-day electoral term. In contrast to current law, the 60-day voting period for subsidized federal COBRA runs from receipt of the notification and not in accordance with the model references and the summary of the new law by the DOL. This means that plan sponsors and administrators have to document the receipt, e.g. B. by registered mail with acknowledgment of receipt.
Termination of Eligibility for Another Group Health Plan / Medicare. Eligibility for the grant ends with eligibility for coverage under another group health plan or Medicare, even if the individual does not sign up for that coverage. To that end, another group health plan includes a different employer’s group health plan or the spouse’s spouse group health plan.
COVID-19 Extended deadlines not applicable. The extended deadlines allowed under the Ministry of Labor’s COVID-19 relief (discussed here) do not apply to elections for the COBRA grant. However, this does not affect the right of the individual to choose non-subsidized coverage within the extended deadlines.
Voting rights. In accordance with applicable law, any Qualified Beneficiary may make an independent election for Subsidized COBRA, regardless of elections made by any other Qualified Beneficiary.
Punish. Failure to comply with the COBRA Subsidy Rules may result in an excise tax penalty of up to $ 100 per day per Qualifying Beneficiary (up to a maximum of $ 200 per day per family) on the Plan Sponsor.
UNANSWERED QUESTIONS
“Involuntary” terminations. The main disappointment with the DOL guidelines is the failure to clarify the meaning of “involuntary” termination in order to be eligible for the grant. For example, is termination by mutual agreement of the parties, termination for good reason, reaching mandatory retirement age, or a voluntary incentive program permissible? Does an employee who quit after being informed of imminent layoffs also qualify? DOL has confirmed that an employee terminated for “gross misconduct” (and his / her qualified beneficiaries) will not be eligible for the grant. However, only very few employers are willing to classify a dismissal due to “gross misconduct” due to the high threshold of determining “gross misconduct”.
Application to dental and vision plans. The DOL guidelines do not clarify whether the grant is for stand-alone dental and vision plans or just for larger medical plans. The law refers to “group health plans” with certain exclusions without dental and vision plans. Qualified beneficiaries under stand-alone dental and vision plans are therefore likely to be eligible for subsidized coverage.
Employer’s trust in employee representatives. The Frequently Asked Questions do not indicate whether an employer can rely on the assurance of a Qualified Beneficiary that they will be eligible for the grant without the risk of liability. An employer will seldom know what options an employee or former employee (or other qualified beneficiary) has for coverage. Hence, logic would suggest that an employer would have no liability risk if a qualified beneficiary was found to be ineligible without actual knowledge to the contrary.
Effects on the sale of business transactions. The FAQs do not cover how to assign responsibility in connection with the sale of a business. Presumably this is regulated by the existing COBRA regulations.
COMMENTS AND OBJECTIVES FOR PROMOTION
These guidelines were issued by the Department of Labor and not jointly issued by DOL and the Internal Revenue Service. This suggests there may be additional guidance from the IRS.
Plan sponsors and administrators must carefully identify those who need to be notified, distribute the necessary notifications, and document when and how the notifications were made. Even if a COBRA administrator has been hired, the plan sponsor remains responsible for compliance with the law (even if the plan sponsor may have a contractual claim against the COBRA administrator if he fails to meet his contractual obligations).
The IRS excise fines are not the greatest liability in many cases. A greater risk to the plan sponsor could be having to provide retroactive coverage, possibly on a self-funded basis, if they fail to provide the proper notifications.
Currently, Qualified Beneficiaries receiving eligible coverage may not be able to cancel that coverage after the subsidy expires and receive coverage under a Marketplace Policy (which is often cheaper than COBRA coverage) without granting coverage interrupt. However, the frequently asked questions point out that the marketplace rules may be revised to the effect that a special registration period will be set after the subsidy period has expired in order to enable a replacement without a coverage gap.
The content of this article is intended to provide general guidance on the subject. A professional should be obtained about your particular circumstances.