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What Constitutes an Involuntary Termination of Employment for Purposes of the ARPA COBRA Premium Subsidy?



QUESTION: I understand that to be eligible for the ARPA COBRA premium subsidy, an employee must have lost group health plan coverage due to an involuntary termination of employment or a reduction of hours. For this purpose, when is a termination of employment considered involuntary?

ANSWER: The 100% COBRA premium subsidy created by the American Rescue Plan Act of 2021 (ARPA) (see our Checkpoint article) is available when certain employees (and their families) lose health coverage due to the employee’s reduction of hours or involuntary termination of employment. As you may have already discovered, one of the most difficult issues in assessing a qualified beneficiary’s eligibility for the subsidy is determining whether the employee was “involuntarily” terminated. Fortunately, IRS guidance addresses this issue (see our Checkpoint article).

According to the IRS, an involuntary termination is a severance from employment due to the employer’s exercise of unilateral authority 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. The determination of whether a termination is involuntary is based on the facts and circumstances. Here are some examples:

  • An employee-initiated termination in response to an involuntary material reduction of hours (even if there was no loss of coverage) is an involuntary termination.
  • If an employer ends an individual’s employment while the individual is absent from work due to illness or disability, and, before the action, there was a reasonable expectation that the employee would return to work, an involuntary termination may have occurred.
  • An employee’s death is not an involuntary termination that would make qualified beneficiaries, such as the spouse and dependent children, eligible for the premium subsidy.
  • Retirement is generally not an involuntary termination. But if the facts and circumstances indicate that, absent retirement, the employer would have terminated the employee’s employment, the employee was willing and able to continue employment, and the employee knew of the impending termination, the retirement is an involuntary termination.
  • An employee’s participation in a window program under which employees with impending terminations are offered a severance arrangement to terminate employment within a specified time period is considered an involuntary termination.
  • A resignation due to a material change in the employee’s geographic location of employment is an involuntary termination.
  • An employee’s resignation due to general concerns about workplace safety is usually not an involuntary termination, nor is resignation due to a health condition or the inability to locate day care.

For more information, see EBIA’s COBRA manual at Section VI.H (“ARPA Premium Subsidy”).

Contributing Editors: EBIA Staff.

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