Big Changes Regarding Employee Terminations included in the new stimulus package: How to Handle Employee Terminations under the new American Rescue Plan
Overview from New City
In addition to the many components intended to help homeowners, the unemployed, and struggling businesses (among others), the recent $1.9 trillion American Rescue Plan Act (ARPA) included several components that will have an impact on the group health insurance market. One area where employers will see an immediate impact is with employee terminations.
Group Market: Under ARPA, recently terminated employees and their dependents who lost
health coverage in most cases will be eligible for no cost COBRA between 4/1/2021 and 9/30/2021. The terminating employer will be responsible for covering the cost of the COBRA premiums, which can in turn be reimbursed by a credit against payroll taxes. While this may seem like an attractive offer for terminated employees, the individual market will be a better option for many COBRA eligibles:
Individual & Family Plans (IFPs): If any primary tax filer or their spouse receives or is
approved to receive unemployment for at least 1 week in 2021, the Rescue Plan includes a provision that qualifies unemployment qualifiers to receive Advanced Premium Tax Credits at the level of 138% the Federal Poverty Level (regardless of salary). This means that these members (and their dependents) will qualify for the richest plan in the individual market with the maximum government subsidy available.
What does this mean?
While a 100% subsidized COBRA health plan may seem like an attractive option, for COBRA eligible employees that are also 1. Eligible for unemployment and 2. Have strong IFP options available in their home zip code, the IFP plans will be the stronger alternative for a high percentage of people.
The subsidy can be valid for longer (all of 2021), and in most cases, will feature considerably more comprehensive benefits than the COBRA plan offered.
Our recommendation is to make sure that your employees are properly educated on all options
upon offboarding to ensure enrollment in the best plan and to ease unnecessary administrative
work.
Please review additional details from our vendor partners below:
Notice from Covered CA about Individual and Family Plans: Increase Financial Help for
Consumers Who Receive Unemployment Compensation During 2021
For households in which the primary tax filer or their spouse receives or is approved to receive unemployment insurance benefits (UIB) for one (1) or more week in 2021, the FPL for the purposes of eligibility determinations for APTC and Cost-Sharing Reductions (CSR) would be locked at 138.1% FPL. Effectively, that means that—for any tax household in which the primary tax filer or their spouse received UIB for 1 week or more during 2021—any household income above 138.1% of FPL is disregarded for the purposes of financial help eligibility calculations. The FPL lock will apply to the APTC & CSR determination for all members of the tax household that are not otherwise determined eligible for Medi-Cal or CHIP programs and meet all other APTC program requirements
Notice from our Third Party Administrator (TPA) about Extended Subsidies for COBRA
Premiums
The American Rescue Plan Act of 2021 (ARPA), signed into law by President Joe Biden on March 11, 2021, takes effect April 1, 2021. The ARPA allows individuals and family members who have been involuntarily terminated or experienced a reduction in work hours to continue receiving health insurance through their employer with a 100% COBRA subsidy.
COBRA administrators have been working hard to address these changes and update operational procedures to satisfy the requirements of the ARPA. This notice provides an overview of the new COBRA requirements and any action items our clients must take to comply with the new legislation.
COBRA Subsidy Overview and Criteria:
- The subsidy will cover 100% of the COBRA premiums for employees and family members who are losing group health coverage as a result of an involuntary termination of employment or reduction in work hours.
- The subsidy is not available for individuals who become eligible for Medicare or group health plan coverage elsewhere
- The subsidy will begin on April 1, 2021 and end on September 30, 2021.
- Any eligible individual who is enrolled in COBRA or will enroll in COBRA on or after April 1, 2021, and before September 30, 2021, will have the subsidy available to them.
- Any eligible individual who did not previously elect COBRA coverage or who elected and discontinued coverage prior to April 1, 2021, will be provided with an additional 60 days to elect coverage and obtain the subsidy for any premium owed beginning April 1, 2021 (e.g., those who had an involuntary loss of employment or reduction of hours as far back as 17 months prior to April 1, 2021).
Action Items for Clients:
March 29, 2021 — April 30, 2021: Review COBRA Records
— Employer Responsibility
- We are unable to determine if a previously-terminated employee was terminated voluntarily or involuntarily without the employer providing and confirming such information. As the custodian of employment records, the employer is responsible for reporting this information accurately; therefore, it is crucial employers review their COBRA records to ensure those employees who were terminated beginning November 1, 2019 to present were marked correctly as involuntary or voluntary.
- Review COBRA records and confirm that individuals who were terminated involuntarily or had a reduction in hours are marked as Termination Involuntary or Reduction in Hours under Event Type.
- If there are any changes that need to be made to an individual’s status in the COBRA system, contact your Client Relationship Team.
- To ensure all individuals who are eligible for the subsidy receive their notices in the required timeframe, please notify your Client Relationship Team of any changes by April 30.
Action Items for TPA’s and the Department of Labor
April 10, 2021
— Department of Labor Responsibility
- Election model notice will be issued (within 30 days of ARPA enactment date)
May 5, 2021* — May 31, 2021
— TPA Responsibility
- TPA will mail the special COBRA election notice to individuals who have been involuntarily terminated or had a reduction in hours and who are still in their 18-month COBRA coverage period at no additional cost. Qualified Beneficiaries must elect within 60 days of being provided the new election notice. *Date subject to change pending DOL-provided notice.
April, 25, 2021
— Department of Labor Responsibility
- Subsidy Expiration model notice will be issued (within 45 days of ARPA enactment date)
May 3, 2021* — September 15, 2021
— TPA Responsibility
- TPA will mail the Subsidy Expiration Notice to enrolled Qualified Beneficiaries no more than 45 days, and no less than 15 days, prior to the premium subsidy expiration date at no additional cost. *Date subject to change pending DOL-provided notice.
Employers will be able to offset the cost of the COBRA subsidy through a payroll tax credit against the Section 3111(b) Medicare tax. The credit will include the entire COBRA premium, including the 2% administrative fee. More information and guidance on the tax credit procedures will be forthcoming as the IRS and DOL work to determine the exact procedure.