The CARES Act: Potential Impact on COBRA

The American Recovery and Reinvestment Act (ARRA) of 2009 provided eligible workers who lost their jobs between Sept. 1, 2008, and May 31, 2010, with a subsidy for COBRA continuation premiums. The Coronavirus Aid, Relief and Economic Security (CARES) Act could result in a similar – or perhaps even more generous – COBRA subsidy. Here we explore what this potential subsidy could look like and what actions you can take now to lead to a more seamless transition.

How ARRA Worked

The ARRA, signed into law on Feb. 17, 2009, included the following:

• A 65 percent subsidy for COBRA continuation premiums for employees and their families for up to 15 months
• Eligible workers pay 35 percent of the premium to their former employers
• To qualify, employers must have been involuntarily separated from their job between Sept. 1, 2008, and May 31, 2010
• A reduced subsidy if an individual’s filing status was single and their modified adjusted gross income exceeded $125,000 ($250,000 for a joint return). If the modified adjusted gross income exceeded $145,000 ($290,000 for joint filers), an individual did not qualify for the subsidy.

The administration of the ARRA COBRA subsidy was complex. Because the subsidy was retroactive and included people who had previously been offered but did not elect COBRA, COBRA administrators had to re-notify groups of individuals, then issue corrected notifications as the rule evolved, along with extensions of the initial time period.

COVID-19 Comparison

More than 16 million individuals have filed for unemployment between March 15 and April 4, 2020. Here are a few possibilities for what another COBRA subsidy could look like:

• Potentially, the CARES federal subsidy could be more than 65% of the premium, up to 100%.
• The duration of the subsidy could be for a defined time, potentially beyond the 18 months COBRA allows.
• The impacted group could align, or not, with the definition of eligibility for the $1,200 stimulus payment.
• There could be subsidy adjustments based on income level, as with the $1,200 payment.
• The subsidy instructions would almost certainly be retroactive to at least March 1, 2020.
• The subsidy could or could not include the 2% administrative fee allowed by federal law.

Employer and TPA considerations and preparation

Due to high unemployment numbers, TPAs could potentially feel an immense and unmanageable burden. At minimum, TPAs and employers face an increase in the volume of Qualifying Event notices. To get ahead of these challenges and prepare for a possible subsidy, here’s what you can do:

1. Outline a clear process for applying subsidies to any or all of an individual’s benefit plans. The features could include:

• The ability to flex the subsidy amount between dollar or percentage up to a fully covered premium amount.
• The ability to apply a subsidy to only certain benefits (i.e. medical but not dental).
• A subsidy structure that could accommodate subsidized premiums coming from more than one source (partial federal and partial employer).
• The ability to carve out the 2% administration fees from the premium/subsidy so that the employer/TPA billing relationship can be properly managed.
• Retroactive subsidized or non-cash payment processes.
• Custom notices or editable notices, with rapid deployment to production
• A print operation that can scale to significant proportions to manage the volume of Qualifying Event notices that need to be sent or re-sent.
• A clear process and three-way relationship to ensure that the employer, TPA and insurance carriers are aligned on premiums owed and paid.

2. Prepare customer service and operational processes and staff.

• Set up IVR and pre-record messages to explain the most common consumer questions.
• Think about your strategy to handle the increased call volume and election rates.
• Begin to draft employer-facing communications about how the subsidy works and any information the employer must provide to determine the subsidy (such as income level).

3. Review client contracts.

• Consider how will you charge employers for this work. Will that amount vary if you charge a PEPM vs a per-unit-of-work methodology?
• Consider if you’ll need to amend your current contracts.

As you continue to navigate this COVID-19 crisis, look to Alegeus as your trusted partner to help interpret the market environment, legislative updates and strategies for moving forward.