Overview of IRS Guidance for COBRA Subsidy under ARPA

The IRS has at last published Notice 2021-31, providing guidance for the American Rescue Plan Act (ARPA) COBRA subsidy.  Notices to Assistance Eligible Individuals (AEIs) must be provided no later than May 31, 2021 and until now, there were unanswered questions on how to administer the notices and the subsidy.  Below is a listing of the notice sections and our recap of answers to key questions. 

Notice Sections

  • Eligibility for the Subsidy (QAs 1 – 20, page 6)
  • Reduction in Hours (QAs 21 – 23, page 13)
  • Involuntary Termination of Employment (QAs 24 – 34, page 14)
  • Coverage Eligible for COBRA Premium Assistance (QAs 35 – 42, page 17)
  • Beginning of COBRA Premium Assistance Period (QAs 43 – 46, page 20)
  • End of COBRA Premium Assistance Period (QAs 47 – 50, page 22)
  • Extended Election Period (QAs 51 – 55, page 23)
  • Extensions Under the Emergency Relief Notices (QAs 56 – 59, page 25)
  • Payments to Insurers (QA 60, page 27)
  • Comparable State Continuation Coverage (QAs 61 – 62, page 27)
  • Calculation of COBRA Premium Assistance Credit (QAs 63 – 70, page28)
  • Claiming the COBRA Premium Assistance Credit (QAs 71 – 86, page 33)

Key Answers

Below are answers to key questions that were not clear in the law or were not provided in the Department of Labor FAQs. 

  • Eligibility
    • Birth/adoptions – a child born or adopted after an involuntary termination or reduction of hours is a qualified beneficiary (QB) and any premiums paid on behalf of the child is subsidy eligible. (QA-2, QA-19)
    • Attestations for premium credit – self-certification or attestation of an AEI’s eligibility for the subsidy is not required. However if the employer wants to take the premium credit, they must retain in their records either a self-certification or attestation from the AEI regarding the AEIs eligibility status, or other documentation to substantiate the AEI is eligible for the subsidy. Employers may rely on this attestation unless they have knowledge that the attestation is incorrect. (QA-4 – QA-7)
    • Other health coverage waiting period – if an AEI cannot currently enroll in other group health coverage, they are eligible for the subsidy up until the effective date of when they may enroll in other coverage. Q&A-9 on page 8 and Q&A-11 on page 9 include several examples.  Example #3 on page 9 of the notice is interesting.  If a QB remains eligible to be added to their spouse’s plan due to the extended deadline relief (e.g., Outbreak Period) to notify an employer or plan administrator of the loss of coverage, they are not eligible for the subsidy.  Under these circumstances, they may enroll in COBRA, but they are not subsidy eligible.  (QA-9 – QA-11)
    • Medicare – if a qualified beneficiary is enrolled in Medicare, they are not eligible for the subsidy but may be eligible for COBRA based on the facts and circumstances. (QA-12)
    • AEIs enrolled in a Health Insurance Exchange – a qualified beneficiary who is enrolled in an Exchange may elect COBRA and be eligible for the subsidy if they are an AEI. They will not be eligible to receive a premium tax credit for the Exchange at the same time they are receiving the subsidy. (QA-13)
    • Second qualifying events – the subsidy is available if an AEI is on an extended period of COBRA coverage between April 1, 2021 – September 30,2021 for disability, second qualifying events, or State mini-COBRA, if the original qualifying event was an involuntary termination or reduction in hours. (QA-17)
    • Retiree plans – AEIs covered under a retiree health plan are eligible for the subsidy if the retiree plan is offered under the same group health plan as the COBRA continuation coverage. An AEI is not eligible for the subsidy if they are covered under a retiree health plan that is not subject to COBRA and is coverage under a separate group health plan. (QA-18)
    • Premiums for non-AEIs – if an AEI also covers family members who are not AEIs, the portion of the premiums that are attributable to non-AEIs is not subsidy eligible and must be paid by the COBRA member. There is an exception for births/adoptions. (QA-19)
    • Late premium payments for retroactive COBRA coverage – an AEI will remain subsidy eligible for COBRA coverage effective on or after April 1, 2021 even if they elected retroactive COBRA coverage under the deadline relief notices (e.g., Outbreak Period) and they stopped paying their retroactive COBRA coverage premiums. (QA-20)
  • Reduction in Hours and Involuntary Terminations – please see our blog about reduction of hours and involuntary terminations. (QA-21 – QA-34)
  • Coverage Eligible for the Subsidy
    • Vision-only and dental-only plans – these plans are eligible coverages for the subsidy. (QA-35)
    • HRAs – COBRA coverage under a health reimbursement arrangement is eligible coverage for the subsidy. (QA-37 – QA-39)
    • Benefits no longer available – if an employer no longer offers a benefit that an AEI was covered under when they incurred a reduction of hours or involuntary termination, the AEI must be offered the opportunity to elect the plan that a similarly-situated active employee would have been offered. The plan offered must be one that is most similar to the previous plan that covered the AEI, even if the premium is greater. The new coverage is subsidy eligible. (QA-42)
  • Beginning of the Subsidy Period
    • Effective date of subsidy – an AEI is eligible to receive the subsidy as of the first applicable period of coverage (monthly or shorter period) beginning on or after April 1, 2021. For example, if bi-weekly coverage begins on March 28, 2021 – April 10, 2021 followed by a period of coverage from April 11, 2021 – April 24, 2021, the subsidy applies to the premium beginning on April 11, 2021. (QA-43)
    • Extended election period subsidy effective date – if an AEI may enroll in COBRA and the subsidy under the ARPA extended election period, they may elect COBRA retroactively to April 1, 2021 or prospectively. It is unclear how far in the future an AEI may delay their COBRA coverage and subsidy effective date. In our opinion, it should be no later than the beginning of the coverage period (e.g., beginning of the month) in which the 60-day period election deadline expires but this is not clear in the guidance. (QA-44)
    • Elections made after September 30, 2021 – if an AEI makes a COBRA election after September 30, 2021 but on or before the 60-day ARPA deadline, the subsidy is available for periods of coverage between April 1, 2021 and September 30, 2021. For example, if a QB was terminated effective August 15, 2021, lost health coverage effective September 1, 2021, and was mailed a qualifying event election notice on August 20, 2021, they have until October 19, 2021 to enroll in COBRA. The subsidy is effective September 1, 2021, even if they elect in October. (QA-46)
  • End of the Subsidy Period
    • Length of subsidy – the subsidy applies until the earliest of 1) the date the AEI becomes eligible for other group health coverage or Medicare, 2) the date the AEI ceases to be eligible for COBRA, or 3) end of the last period of coverage beginning on or before September 30, 2021. For example, the employer has a bi-weekly period of coverage and in September 2021, the last period of coverage is September 19, 2021 – October 2, 2021.  The entire coverage is eligible for the subsidy even though the coverage includes coverage for October 1 & 2. (QA-47)
    • COBRA coverage after September 30, 2021 – after the subsidy expires, COBRA continues and premiums will be due based on standard COBRA rules taking into consideration the deadline relief notices (e.g., Outbreak Period). (QA-48)
    • Death of AEI following involuntary termination or reduction of hours – the subsidy is still available following the death of an AEI for other qualified beneficiary AEIs such as a spouse and dependent children. (QA-50)
  • Extended Election Periods
    • Adding qualified beneficiaries to COBRA who are AEIs effective April 1, 2021 – if an AEI elected self-only COBRA coverage and their spouse and dependent children who were QBs as of the qualifying event date were not previously enrolled in COBRA, the spouse and dependent children have a separate right to elect COBRA (and the subsidy) under the ARPA extended election period. (QA-51)
  • Extensions Under the Emergency Relief Notices (e.g., Outbreak Period)
    • COBRA rights for retroactive coverage must be elected at the time of the subsidy election – when a QB elects COBRA with the subsidy, at the same time the AEI must also elect or decline COBRA coverage retroactive to the original qualifying event date within 60 days of receiving the subsidy notice. If retroactive COBRA coverage is declined, the QB loses their right to elect retroactive coverage under the extended deadline rules (e.g., Outbreak Period). This guidance is surprising and was unexpected. The DOL model notice does not mention this fact but probably should. It is assumed the IRS and the DOL discussed this detail and both agreed to the guidance.  (QA-56 and QA-59)
    • Retroactive coverage and premium payment deadlines – if the AEI elects retroactive COBRA coverage back to their original qualifying event date, and they elect the subsidy, the AEI must make premium payments for the coverage before April 1, 2021. If they fail to make the premium payments by the payment deadlines, taking into account the deadline relief (e.g., Outbreak Period), COBRA coverage may be retroactively terminated up through March 31, 2021. COBRA coverage and the subsidy effective on or after April 1, 2021 may continue.  It is unlikely that QBs will elect retroactive COBRA coverage, especially if their qualifying event date was a long time ago. (QA-58) 
  • Calculation of COBRA subsidy and claiming the subsidy credit (QAs 71 -86) – these topics will be addressed in a future blog. However, the QA-69 information is below and impacts subsidy notices being mailed between now and May 31, 2021.
    • Benefits added at open enrollment – a qualified beneficiary is entitled to add benefits during an open enrollment period. If a QB is an AEI, the benefits added during open enrollment are eligible for the subsidy.  Keep in mind, if family members are added at open enrollment who were not QBs at the time of the involuntary termination or reduction of hours, they are not eligible for the subsidy.  Any premium increases attributable to these non-QBs are not eligible for the subsidy and the difference must be paid by the COBRA member. (QA-69) 

Millions of subsidy notices must be mailed on or before May 31, 2021, so the IRS guidance is very welcome information for plan administrators and service providers.  The notice provides many examples that are helpful in deciphering the guidance.  The IRS also indicates additional guidance is forthcoming.  Surprisingly, the IRS did not provide good-faith compliance relief in this notice.  Employers and service providers are scrambling to incorporate the guidance into their subsidy administrative procedures and notices. 

See our prior articles for additional subsidy information:

COBRA Premium Subsidy Under the American Rescue Plan Act of 2021

DOL Provides Model Notices and FAQs for ARPA COBRA Subsidy

IRS Guidance for COBRA Subsidy: Involuntary Terminations and Reduction of Hours

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