IRS Takes Second Bite Into COBRA Subsidy Questions Under ARPA
On July 26, 2021, the IRS issued Notice 2021-46, which provides additional guidance in the form of 11 new questions and answers about the COBRA subsidies under the American Rescue Plan Act of 2021 (“ARPA”). Notice 2021-46 expands on guidance in the previously issued Notice 2021-31 (see our previous client alert here).
Under ARPA, an assistance eligible individual (“AEI”)—which is a COBRA qualified beneficiary who becomes eligible for COBRA due to a reduction in hours or involuntary termination of employment—may be eligible for a COBRA subsidy equal to the entire COBRA premium for the period from April 1, 2021 through September 30, 2021.
IRS Notice 2021-46 provides helpful clarifications on the following topics:
- AEIs may be eligible for the COBRA subsidy for extended coverage periods (e.g., disability extensions or second qualifying events), even if the AEI didn’t elect extended coverage before April 1, 2021;
- Eligibility for other health coverage that does not include vision or dental benefits terminates an AEI’s eligibility for the COBRA subsidy for vision-only or dental-only coverage; and
- Additional clarification on the entity that may claim the tax credit for the COBRA subsidy.
This client alert highlights some of the key points in the new guidance.
Eligibility for the COBRA Subsidy – Extended Coverage Periods
- Q&A 1. The COBRA subsidy is available to AEIs who are entitled to elect an extension beyond their original 18-month COBRA continuation coverage period (due to a disability determination, second qualifying event, or an extension under state mini-COBRA), but only to the extent that the extended period of coverage falls between April 1, 2021 and September 30, 2021. The COBRA subsidy is available even if the AEI had not elected extended coverage before April 1, 2021, provided that the AEI is still entitled to elect extended coverage.
- Example. An employee is involuntarily terminated and elects COBRA continuation coverage effective October 1, 2019. The individual’s original 18-month COBRA continuation period lapses March 31, 2021. On March 1, 2020, the Social Security Administration issues a disability determination letter stating that the individual was disabled as of November 1, 2019 (entitling the individual to elect an extended 29-month COBRA continuation period). The individual fails to notify the plan of the disability determination by April 30, 2020 (i.e., within 60 days of the date that the Social Security Administration issued the letter). However, under EBSA Disaster Relief Notices 2020-01 and 2021-01 (see our previous client alerts here and here), the individual has up to one year and 60 days (i.e., until April 30, 2021) from the issuance of the disability determination to notify the plan of the disability and elect extended COBRA continuation coverage. On April 10, 2021, the individual notifies the plan of the disability and elects to continue COBRA effective April 1, 2021. Assuming that the individual is not eligible for other disqualifying group health plan coverage or Medicare, the individual is an AEI and is entitled to the COBRA subsidy for the period of April 1, 2021 through September 30, 2021.
End of COBRA Subsidy Period – Dental and Vision Coverage
- Q&A 2. Eligibility for the COBRA subsidy ends for dental-only or vision-only COBRA continuation coverage when an AEI becomes eligible for coverage under any other disqualifying group health plan or Medicare, even if the other coverage does not include all of the benefits provided by the previously elected COBRA continuation coverage. For example, eligibility for a new employer’s group health plan providing coverage for medical and prescription drugs will terminate the COBRA subsidy for a dental-only or vision-only group health plan, even if the new employer doesn’t offer a dental or vision group health plan.
Claiming the Tax Credit for the COBRA Subsidy – Additional Clarification on the Entity that May Claim the Tax Credit
- Q&A 4. For fully insured group health plans subject to federal COBRA and self-funded group health plans, the “common law employer” maintaining the plan is generally entitled to claim the tax credit for the COBRA subsidy. Q&A 4 clarifies that the “common law employer” is the current employer of the AEI whose hours have been reduced, or the former employer for AEIs who have been involuntarily terminated from employment.
- Q&A 6, Q&A 8, and Q&A 9. If a group health plan covers employees of two or more members of a controlled group, each common law employer that is a member of the controlled group is generally the entity entitled to claim the tax credit with respect to its employees or former employees. This means that the entity within a controlled group (which is generally treated as a single employer for employee benefits purposes) that sponsors the group health plan of employees of other entities is not entitled to claim the tax credit for the COBRA subsidy for AEIs who were employees of those other entities.
- Q&A 7. If a group health plan covers employees of two or more unrelated employers in a multiple employer welfare arrangement (“MEWA”), the entity entitled to claim the tax credit is generally the common law employer. For example, the association that sponsors the MEWA is not entitled to claim the tax credit for the COBRA subsidy. (This is likely welcome news to association health plans.)
Employers that sponsor group health plans should continue to work closely with their third-party COBRA administrators to ensure compliance with ARPA and the IRS guidance regarding the COBRA subsidies.
If you have any questions about the COBRA subsidies under ARPA, or IRS Notice 2021-46, please contact one of the authors or another one of the Miller Johnson employee benefits attorneys.