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Federal COBRA Subsidy Also Applies to Employers with Fewer than Twenty Employees

April 22, 2021

While all larger employers around the country should be taking notice of the COBRA subsidy recently created by the federal American Rescue Plan (ARP), smaller employers should be paying attention too (For an explanation of this new legislation, see our recent article)!  Under the ARP, free COBRA coverage is available to COBRA-eligible individuals who qualify due to a reduction in hours or involuntary termination.  It is now clear – this benefit also is eligible to similarly situated mini-COBRA eligible workers.   

Federal COBRA provisions apply to group health plans sponsored by employers with 20 or more employees. However the Department of Labor’s recent FAQ’s and Notice published in the Federal Register, make it clear that group health plans sponsored by employers with fewer than 20 employees are eligible for the same premium assistance.  These plans are often called “mini” COBRA plans as they are mandated by state laws, not the federal law.  This coverage issue was not initially clear, but it is now and small employers must take action. 

What do employers need to know?

An “Alternative Notice” is required under the ARP for “mini-COBRA” plans. The notice must be provided to all qualified beneficiaries who have experienced a qualifying event at any time from April 1, 2021, through September 20, 2021, regardless of the type of event. A model notice has been provided by the Department of Labor, but it will be necessary to modify it to comply with varying state mini-COBRA laws.

The Alternative Notice must include the following information:

  • A prominent description of the availability of the premium assistance, including any conditions on the entitlement;
  • A form to request treatment as an “Assistance Eligible Individual;”
  • The name, address, and telephone number of the plan administrator (and any other person with relevant information about the premium assistance);
  • A description of the obligation of individuals paying reduced premiums who become eligible for other coverage to notify the plan (and the penalty for failing to meet this obligation); and
  • A description of the opportunity to switch coverage options (if applicable).

In most cases, your insurer will have these notices available and will mail them.   However, remember, the obligation is on the employer, not the insurer; if a mistake is made, the employer is responsible. Therefore, small employers should confirm with their insurer or broker, who is sending out this notice.  In terms of how the employer is reimbursed, that has more questions than answers.  We know a tax credit is given against Medicare payments due to the federal government, however, who gets that credit – the employer or the insurer – is not clear.   When you talk to your insurer about the notice, be sure you clarify that you will be given this credit – one way or another.  

The subject matter of COVID-19 related posts is often very technical.  It is also an evolving area of law and very fact specific.  Our goal here is to simply alert you to some of the key issues involved.  We urge you to seek competent legal counsel before applying these ideas to your specific situation.  Since March 2020, we have had a team of attorneys focusing on COVID-19 related developments and they continue to stand ready to help you with any issues involving the pandemic.