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IRS Issues Guidance on COBRA Premium Subsidy



IRS Notice 2021-31 (May 18, 2021)

Available at

The IRS has issued 86 Q&As on the COBRA premium assistance provisions of the American Rescue Plan Act of 2021 (ARPA). Under ARPA, a 100% COBRA premium subsidy and additional COBRA enrollment rights are available to certain assistance eligible individuals (AEIs) during the period beginning on April 1, 2021, and ending on September 30, 2021 (see our Checkpoint article). The DOL previously issued model notices and a set of FAQs (see our Checkpoint article). Here are highlights of the IRS guidance:

  • Eligibility. The subsidy is available until an AEI is permitted to enroll in other group health plan coverage—including during a waiting period. And an individual may become an AEI more than once (e.g., due to successive losses of coverage under the individual’s or a spouse’s plan). But a reduction of hours or involuntary termination of employment that follows an earlier qualifying event, such as a divorce, does not make a qualified beneficiary from the first qualifying event an AEI. Nevertheless, the subsidy is available to AEIs who elected and remained on COBRA for an extended period due to a disability determination or second qualifying event, to the extent the additional periods of coverage fall within the subsidy period. Employers may (but are not required to) obtain employee attestations or self-certifications of AEI status or eligibility for other coverage and may rely on the attestations absent actual knowledge to the contrary.
  • Reduction of Hours. A furlough is considered a reduction of hours, so long as the employer and employee intend to maintain the employment relationship and regardless of whether the employer initiated the furlough or the individual participated in a “window” arrangement. A work stoppage due to a strike or lockout is also considered a reduction of hours, so long as the intent is to continue the employment relationship.
  • Involuntary Termination. An involuntary termination of employment means a “severance from employment due to the independent exercise of the unilateral authority of the employer to terminate employment,” where the employee was willing and able to continue performing services. An employee-initiated termination of employment is also considered involuntary if an employer action “results in a material negative change in the employment relationship” that is analogous to a constructive discharge. For instance, an involuntary termination includes a resignation due to a material change in the employee’s geographic location of employment, as well as a resignation due to an involuntary material reduction of hours that did not result in a loss of coverage. 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.
  • 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.
  • Extended Election Period. Extended election periods are only required with respect to federal COBRA coverage, although if state programs provide similar rights, the subsidy would be available. AEIs electing the subsidy during an extended election period (including those with open election periods due to the outbreak period extensions (see our Checkpoint article)) may waive COBRA for any period before their election. With respect to HRAs, AEIs who elect COBRA solely under the extended election period (and decline to elect coverage retroactive to the qualifying event) are not entitled to reimbursement for expenses incurred after the qualifying event and before the first period of coverage beginning on or after April 1, 2021. During the subsidy period, however, the AEI generally will have access to the same level of HRA reimbursements that was available immediately before the qualifying event, reduced by any reimbursements made after the qualifying event (e.g., for expenses previously incurred).
  • Outbreak Period Extensions. Although the outbreak period extensions do not apply to the subsidy’s notice or election deadlines, the extensions remain available for premium payments for retroactive periods of coverage prior to the subsidy period. But an AEI who elects the COBRA subsidy but declines to elect retroactive COBRA coverage may not do so after the end of the 60-day extended election period.
  • Tax Credits. The amount of the credit is the premium that would have been charged to an AEI absent the COBRA subsidy and does not include the amount of any subsidy the employer would have otherwise provided. However, if a plan that previously charged less than the maximum premium allowed under COBRA increases the premiums for similarly situated covered employees and qualified beneficiaries, the subsidy applies to the increased premium amount. For an individual coverage HRA, the credit is limited to 102% of the amount actually reimbursed to the AEI. Details are provided on who is eligible to claim the credit (in most cases, the employer); when it is available (generally, at the beginning of a coverage period for which an AEI does not pay a premium); and how to claim it. Employers must maintain records substantiating eligibility for the credit; however, they generally need not refund credits received for AEIs who failed to report their ineligibility for the subsidy.

EBIA Comment: The guidance includes a wealth of examples and information beyond what is highlighted here, and plan administrators and their advisors should study it carefully. The IRS notes that additional issues may be the subject of future guidance. For more information, see EBIA’s COBRA manual at Section VI.H (“ARPA Premium Subsidy”). See also EBIA’s Consumer-Driven Health Care manual at Section XXV.B.12 (“Temporary COBRA Premium Subsidy Under ARPA”). If you missed our webinar “Another COBRA Subsidy! Compliance Steps to Take Immediately,” presented by Howard D. Bye-Torre, Esq. and Andrew Ky Haynes, Esq. on 4/7/2021, a recording is available.

Contributing Editors: EBIA Staff.

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