COBRA rules changes help terminated workers maintain health care coverage

Since 1985, the Consolidated Omnibus Budget Reconciliation Act, better known as COBRA, has been providing assistance to workers who have lost their employer-sponsored health insurance because of a job termination or other qualifying events. As American workers and businesses continue to navigate the COVID-19 pandemic, recent executive and legislative action has increased the effectiveness of COBRA to help unemployed people maintain both physical and financial health throughout the emergency.

COBRA basics

Employers are required to offer COBRA benefits if they employed 20 or more employees on more than 50 percent of their typical business days in the previous calendar year and have a group health plan. Most of the group health plans offered to employees are subject to the law and must also be offered to COBRA qualified beneficiaries. Some common examples include:

• Medical, dental, vision, and prescription plans.
• Medical flexible spending accounts (FSAs) and health reimbursement arrangements (HRAs).
• Employee assistance plans (EAPs) providing medical care.

COBRA benefits extend to employees or former employees covered by the group health plan, the spouse or former spouse of a covered employee, and the dependent children of a covered employee.

Employee Benefits Security Administration Disaster Relief Notice 2020-01 Changes

Originally issued in April 2020 by the U.S. Department of Labor and the IRS, this notice provides temporary extension of certain deadlines for sending notifications and electing and paying for COBRA continuation coverage. In February 2021, the U.S. Department of Labor provided additional guidance, which clarified that the COBRA deadline extension end date is specific to each individual and deadline. The disaster relief notice pauses individual deadlines until 60 days after the COVID-19 National Emergency has been declared over or until one year has passed, whichever occurs first.

Under standard COBRA timelines, the qualified beneficiary has 60 days from the date the COBRA Election or Specific Rights Notice (SRN) was postmarked to elect COBRA benefits. Once the COBRA participant elects, he or she has 45 days to pay all premiums from the qualifying event date. The participant then has 30 days each month to make payment to maintain coverage.

Also: All about COBRA: 4 FAQs consumers need to know

Under the extended timelines, if the original deadline to elect in COBRA continuation coverage was April 2, 2020, then the new election deadline for that COBRA participant would be one year later: April 2, 2021. If the original deadline to pay for COBRA premiums was April 30, 2020, then the new payment deadline for that COBRA participant would be April 30, 2021.

American Rescue Plan Act of 2021 Changes

On March 11, 2021, President Biden signed the American Rescue Plan Act (ARP) of 2021, which allows workers who have experienced a reduction in hours or involuntarily termination of employment to continue their employer health coverage under COBRA with a 100 percent subsidy. This subsidy is effective April 1, 2021 and continues through September 30, 2021. The federal government will reimburse the employer or insurer—for fully insured plans—for the cost of the subsidy, including COBRA administrative fees.

Individuals who meet all the following criteria are eligible for this subsidy:

• Lost coverage due to a reduction in hours or involuntary termination of employment;
• Were still within their COBRA coverage period as of April 1, 2021; and
• Have not become eligible for coverage under another group health plan (such as a new employer’s plan or a spouse’s plan) or Medicare.

Subsidy-eligible individuals who did not have an election in place as of April 1, 2021 will have an opportunity to elect during an additional election period and will be able to take advantage of the subsidy. Subsidy-eligible COBRA participants who had an election in place as of April 1, 2021 were able to take advantage of the subsidy effective April 1, 2021. Subsidy-eligible COBRA participants who become eligible for COBRA continuation coverage on or after April 1, 2021 will be eligible for the subsidy while it is in effect.

Key dates:

• March 11, 2021: American Relief Plan Act signed by President Biden
• April 1, 2021: Subsidy effective date
• By May 31, 2021: Subsidy-eligible individuals who become eligible for COBRA prior to April 1, 2021, notified of subsidy
• September 30, 2021: General subsidy end date (subsidy will end earlier for individuals who reach the end of their COBRA coverage period before September 30, 2021)

How many more will enroll due to the subsidy? 

In 2009, the American Recovery and Reinvestment Act provided a 65% COBRA subsidy, and not surprisingly, our data showed that enrollment increased by about 60%. Whether that’s a reliable estimate for what we can expect this time around is unclear. The current 100% subsidy is meaningfully larger, suggesting that higher enrollment might be possible.  There are a few countervailing factors, however. Displaced workers can opt for generously subsidized (up to 100%) ACA exchange coverage, an option that didn’t exist in 2009. ACA coverage often comes with higher deductibles and restrictive networks, making free employer COBRA coverage a more attractive alternative for many. Finally, the economy is currently recovering, while in 2009 unemployment was trending upward. So, while it’s safe to say that enrollment will increase, it Is very difficult to estimate the size of that increase.

Chris Byrd is Executive Vice President of Operations for Benefits at WEX.