Phia Group


Phia Group Media

A COBRA Conundrum

By: Nick Bonds, Esq.

COBRA continuation coverage has never been what I would call “intuitive.” Even under the most straightforward of circumstances, COBRA involves a byzantine labyrinth of rules and timelines, for employers and beneficiaries alike. In the time of coronavirus, COBRA has only grown in its complexity. Recent rules make those timelines more difficult to follow and the coverage more complex to administer. Though these new rules should make more accessible to employees than ever, the COBRA headaches for employers may never have been more intense.

In the “before times,” COBRA coverage was somewhat more straightforward – complicated, surely, but plan administrators were accustomed to the requisite timelines, the unique premium rates, the maximum periods of coverage. COBRA administration was not easy but had a certain familiarity that offset the intimidation factor of its intricacies.

Last spring, as the grip of the pandemic was first beginning to tighten, the Departments of Labor (DOL) and Treasury implemented a new final rule tolling the deadlines for certain aspects of ERISA plans, including the timeframes for electing and paying premiums for COBRA coverage. At the time, like many in our industry, we foresaw that handling COBRA claims incurred during these expanded timeframes were likely to become a chaotic mess. That insight began looking both more accurate and more dire as the pandemic and the “outbreak period” approached its first anniversary. ERISA and the Code imposed a one-year limit on the ability of DOL and the Treasury to toll those deadlines, and we collectively braced to see how the agencies would reconcile that statutory limit with preserving the expanded access to coverage.

Of the likely options their guidance would take, they opted for what was probably the most complex route possible. With mere days to spare before the relief could potentially expire, the DOL issued guidance in Disaster Relief Notice 2021-01, explaining that the “tolling of certain deadlines” operated on a person-by-person basis. Essentially, every individual plan participant has their own unique tolling period. Plan administrators would be forgiven for panicking slightly at trying to keep every individual’s tolling period organized, but at least the deadlines (and premiums) for every potential COBRA beneficiary would not come due all at once, and many plan participants would still have the potential to continue their coverage.

Then, with Sec. 9501 of the American Rescue Plan Act (ARPA), the COBRA landscape got a few new wrinkles. Though COBRA subsidies had been included in the original version of the bill approved by the House of Representatives, those subsidies only covered 80% of the cost of COBRA coverage. In the Senate, those subsidies were increased to 100% for the sixth month period beginning April 1 and ending September 30, 2021. Meaning certain assistance eligible individuals (AEIs) who elect COBRA during this subsidy period would have 100% of their COBRA premiums paid by their employer during that time, with the employers to be reimbursed though payroll tax credits.

This has a few big implications worth considering. Not least of all that COBRA claims have historically been fairly expensive, as most employees tend to avoid paying the relatively high cost of COBRA coverage if they don’t absolutely need it. With that cost nullified, the higher risk pool of COBRA beneficiaries may be somewhat diluted, as even healthy AEIs enroll in COBRA coverage at no cost to themselves.

Additionally, ARPA’s COBRA provisions include its own extended election period for COBRA coverage. An AEI who is not enrolled in COBRA as of April 1, either because they have yet to elect or elected and then dropped COBRA coverage, will have 60 days from the receipt of their new COBRA election notice to enroll. This will give individuals a second bite at the COBRA apple, so long as they are still within their maximum COBRA coverage period (generally, 18 months). Though as we mentioned, each individual will have their own “tolling period” to factor out as well.

ARPA also gives plan sponsors a “plan enrollment option” of allowing AEIs to change the coverage in which they are enrolled, if that coverage is available to similarly situated individuals and the premiums for that coverage do not exceed the premiums for the AEI’s existing coverage. In other words, plan sponsors can allow employees to step down to a tier of coverage that would be less expensive for them (once the six-month subsidy period has ended), but they aren’t allowed to “upgrade.” Plan sponsors are not required to allow AEIs to make this change, but the option is available.

Employers are also required to issue new COBRA notices alerting AEIs to the availability of the premium subsidies and expanded enrollment opportunities and will be required to notify these individuals again between 45 to 15 days prior to the end of the subsidy period. Current COBRA notices may be amended to include the new requirements imposed by ARPA, or separate notices may be provided. The DOL is mandated to issue model notices for both the availability and expiration of the subsidies withing 30 and 45 days of ARPA’s enactment, respectively. 

In the meantime, plan sponsors should reach out to their COBRA administrators (if applicable) and stop loss carriers as soon as possible to ensure that everyone is on the same page for administering claims that are incurred during the six-month window created by ARPA. They should also make preparations to issue updated COBRA notices, to ensure their employees are aware of the subsidy’s availability. As always, the Phia Group is here to answer questions and help clarify the issues these new COBRA rules are sure to create.