Publication

18 October 2021

IRS Clarifies Key Time Extensions of COBRA Election and Payment Deadlines

On October 6, 2021, the IRS issued Notice 2021-58, which provides guidance, including ten helpful examples, on the duration of certain COBRA deadlines due to the COVID-19 pandemic.  Specifically, Notice 2021-58 addresses: (1) the extension of deadlines for COBRA elections and premium payments, and (2) the interaction of the extended deadlines with the COBRA subsidy available under the American Rescue Plan Act of 2021 (“ARPA”).  This client alert highlights some of the key points in this new guidance.

Background

Last year, the Department of Labor (“DOL”) and IRS provided guidance stating that employee benefit plans subject to ERISA must disregard the “outbreak period” when determining certain deadlines, such as deadlines for COBRA elections and premium payments, HIPAA special enrollment periods, and the filing of claims and appeals (the “DOL/IRS regulations”).  See our previous client alert here.  The “outbreak period” is the period from March 1, 2020 until the date that is 60 days after the President’s national emergency declaration for COVID-19 expires.

But under ERISA and the Internal Revenue Code (the “Code”), the government only has authority to issue deadline extensions of up to one year.  In Notice 2021-01, the DOL clarified that the one-year extension applies to individual deadlines on an individual-by-individual basis.  As a result, an individual’s deadline will be “paused” until the earlier of one year from the date that the individual was first eligible for the “outbreak period” relief, or the end of the “outbreak period.”  See our previous client alert here.

Notice 2021-58

In Notice 2021-58, the IRS clarified that the one-year extension for COBRA elections and initial premium payments generally run concurrently.  As a result, a qualified beneficiary will generally only have one year of total disregarded time for the election of COBRA and initial payment periods.

To illustrate the timeframes that apply to individuals making initial COBRA premium payments while the “outbreak period” is ongoing, Notice 2021-58 provides the following rules:

  1. An individual electing COBRA within the initial 60-day deadline (determined without regard to the “outbreak period”) has one year and 45 days after the date of the COBRA election to make the initial COBRA premium payment (See Example 1 in the “Examples” section below); and
  2. An individual electing COBRA after the initial 60-day deadline (determined without regard to the “outbreak period”) generally has one year and 105 days (60 days to make the initial COBRA election, and 45 days to make the initial COBRA premium payment) after the date the COBRA election notice was provided to make the initial COBRA premium payment (See Example 2 in the “Examples” section below).

However, Notice 2021-58 also provides transition relief for individuals who elected COBRA after the initial 60-day deadline, and whose COBRA premium payments are due before November 1, 2021.  Specifically, the transition relief provides that an individual will not be required to make the initial COBRA premium payment before November 1, 2021, even if that date is more than one year and 105 days after the date the COBRA election notice was received, provided that the individual makes the initial COBRA premium payment within one year and 45 days after the date of the COBRA election.  See Example 3 in the “Examples” section below.

Finally, relating to subsequent premium payments, Notice 2021-58 provides that an individual has a maximum period of one year to make a payment while the “outbreak period” continues from the date the payment originally would have been due, including any applicable 30-day grace period.

Examples

Part VI of Notice 2021-58 includes ten examples illustrating how COBRA elections and premium payments are treated under the new guidance.  Below are summaries of three of the examples:

  • Example 1 – COBRA election within the initial 60-day deadline.
    • On October 1, 2020, Individual A has a qualifying event and receives a COBRA election notice.
    • Individual A elects COBRA on October 15, 2020 retroactive to October 1, 2020.
    • Individual A has until November 29, 2021 to make the initial COBRA payment (1 year and 45 days after the October 15, 2020 election).
    • The initial COBRA premium payment must include only the payment for October 2020.
    • The November 2020 payment is due by December 1, 2021 (1 year and 30 days after the regular November 1, 2020 due date). This rule applies to each subsequent monthly payment.
  • Example 2 – COBRA election after the initial 60-day deadline.
    • On August 1, 2020, Individual B has a qualifying event and receives a COBRA election notice.
    • Individual B has until September 30, 2021 (1 year and 60 days after the election notice date) to elect COBRA.
    • Individual B elects COBRA on February 1, 2021, retroactive to August 1, 2020.
    • The initial COBRA payment is due by November 14, 2021 (1 year and 105 days after the August 1, 2020 COBRA notice date).
    • The initial COBRA premium payment must include payments for August 2020 through October 2020.
    • The November 2020 payment is due by December 1, 2021 (1 year and 30 days after the November 1, 2020 due date). This rule applies to each subsequent monthly payment.
  • Example 3 – Transition relief.
    • On April 1, 2020, Individual C has a qualifying event and receives a COBRA election notice.
    • Individual C elects COBRA on October 1, 2020, retroactive to April 1, 2020.
    • Under the transition relief, Individual C has until November 1, 2021 to make the initial premium payment. Even though November 1, 2021 is more than 1 year and 105 days after the April 1, 2020 COBRA notice date, November 1, 2021 is less than 1 year and 45 days after the October 1, 2020 election date.
    • The initial COBRA payment must include the monthly premium payments for April 2020 through October 2020.
    • The November 2020 payment is due by December 1, 2021 (1 year and 30 days after the regular November 1, 2020 due date). This rule applies to each subsequent monthly payment.

Interaction of the COBRA Deadline Extensions with the COBRA Subsidy Under ARPA

Notice 2021-58 reiterates that the COBRA deadline extensions during the “outbreak period” do not apply to the periods for providing the required notice of the ARPA extended election period, or for electing COBRA continuation coverage with the COBRA subsidy available under ARPA.

In addition, Notice 2021-58 states that an individual who has a disregarded period under the DOL/IRS regulations may elect retroactive COBRA continuation coverage (subject to the guidance provided in Notice 2021-58), and may elect COBRA continuation coverage with the COBRA subsidy for any period for which the individual is eligible for the subsidy. The disregarded periods under the DOL/IRS regulations continue to apply, however, to COBRA premium payments after the end of the COBRA subsidy period, to the extent that the individual remains eligible for COBRA continuation coverage and the “outbreak period” has not ended.

Conclusion

Notice 2021-58 provides helpful guidance regarding the extension of COBRA election and payment deadlines.  Employers that sponsor group health plans should continue to work closely with their third-party COBRA administrators to ensure compliance with the federal guidance.

If you have any questions, please contact one of the authors or another one of the Miller Johnson employee benefits attorneys.