New IRS Guidance on COBRA Premium Subsidy
On May 18, 2021, the IRS released Notice 2021-31 that provides guidance on the COBRA premium subsidy that is available under the American Rescue Plan Act of 2021 (ARPA). ARPA provides a temporary 100% subsidy on COBRA premiums for individuals that qualify as Assistance Eligible Individuals (AEIs) during periods of COBRA continuation coverage from April 1, 2021 through September 30, 2021 or until the end of their original coverage period (whichever occurs first).
Notice 2021-31 issued 86 Q&As that provide information regarding the calculation of the employer tax credit, the eligibility of individuals, the premium assistance period and other information. Following are highlights of this Notice.
Eligibility for COBRA Premium Assistance (Subsidy)
An AEI in a waiting period is eligible. Likewise, until an AEI is eligible to enroll in other group health plan coverage, they are eligible for the subsidy. An AEI may become eligible for the subsidy more than once due to successive losses of coverage under employer or spouse’s employer plan.
An employer or other plan sponsor may require individuals to self-certify or attest they meet eligibility criteria in order to receive the subsidy and that they are not eligible for other health coverage or Medicare.
Reduction in Hours/Involuntary Termination
The Notice addresses furloughs and work stoppages, including examples of qualifying terminations during furloughs and retirement. An employee-initiated termination of employment is considered involuntary if an employer action “results in a material negative change in the employment relationship”. For instance, an involuntary termination includes a resignation due to a material change in the employee’s geographic location of employment. However, an employee’s resignation due to general concerns about workplace safety is usually not an involuntary termination; nor is termination due to a health condition or inability to locate daycare. An employee’s death is not an involuntary termination of employment.
Extended COBRA Election Period
The Notice confirms that the extended election period is only required under federal COBRA and is not available if the continuation coverage is provided solely under a state program, unless the state continuation program provides similar rights as federal COBRA. AEIs who elect the subsidy under the extended election period and decline coverage retroactive to a qualifying event cannot receive reimbursements under an HRA for any expenses incurred after the qualifying event and before the period of coverage that begins on or after April 1, 2021.
HRAs and Health FSAs
The subsidy is available for COBRA continuation of any group health plan except a Health FSA. This includes vision and dental plans and Health Reimbursement Arrangements (HRAs), including HRAs integrated with individual health coverage other than Medicare. Qualified Small Employer HRAs (QSEHRAs) are not group health plans, and thus are not subject to COBRA or the subsidy. Eligibility for coverage under an HRA will end an AEI’s subsidy eligibility in the same way as eligibility for coverage under any other group health plan, unless the HRA qualifies as a health FSA.
Special Emergency Disaster Relief (Outbreak period)
The Notice confirms that this special tolling relief does not apply to the 60-day deadline for an individual to elect COBRA continuation coverage with premium assistance or to the plan administrator’s obligation to furnish extended election period notices by May 31, 2021.
Calculating the COBRA Premium Assistance Credit
The tax credit for the applicable quarter is equal to the amount of the COBRA premiums that are not paid by AEIs, including any applicable administrative fee. Notice 2021-31 provides guidance on the calculation of this tax credit. The Notice also provides examples of how the premium payee is to calculate the credit if the employer subsidizes COBRA premiums for individuals who are not eligible for COBRA premium assistance.
How to claim the COBRA Premium Assistance Credit
The Notice provides details on who qualifies as a premium payee for purposes of claiming the credit and when the premium payee can first claim the credit. The Notice provides details for premium payees needing to request an advance of the anticipated tax credit. There are also directions on how to claim the tax credit for premium payees without any employment tax liability (such as a multi-employer plan with no employees).