On Tuesday, 05/18/2021, the Internal Revenue Service (IRS) released IRS Notice 2021-31, which includes additional guidance about the application of the COBRA premium assistance provisions in the American Rescue Plan Act. The guidance includes frequently asked questions (FAQs) about the application of the subsidy in different situations.

Here are some highlights from the guidance. Note that this is a summary and that the guidance includes additional content. Please refer to IRS Notice 2021-31 for full details.

Eligibility for COBRA Premium Assistance

Questions 1-20 address eligibility for COBRA Premium Assistance. Here’s a summary.

General Eligibility

An individual is considered an Assistance Eligible Individual (AEI) if they meet the following criteria:

• Are a COBRA qualified beneficiary (QB) as a result of reduction in hours or involuntary termination of a covered employee’s employment (other than gross misconduct)
• Is eligible for COBRA for some or all of the period beginning 04/01/2021 through 09/30/2021
• Elects COBRA continuation coverage
• Is not eligible for other group health plan coverage
• Is not eligible for Medicare

A QB includes:

• Individuals covered under the group health plan on the day before the reduction in hours or involuntary termination, who lose eligibility for coverage due to the reduction in hours or involuntary termination.
• A child born, adopted, or placed for adoption with the former employee during their COBRA coverage.

A domestic partner is not eligible for treatment as a QB or eligible for the subsidy, even if permitted for continuation coverage under state law.

Eligibility to Enroll in Other Group Health Plan Coverage

COBRA premium assistance is available to potential AEIs until they are permitted to enroll in coverage under any other group health plan. Once they are considered eligible to enroll in group health plan coverage, they lose COBRA premium assistance.

An individual is considered eligible to enroll in other group health plan coverage in the following situations:

• They are currently enrolled in other group health plan coverage
• They have newly satisfied the waiting period at a new employer for group health plan coverage on or after 04/01/2021
• They were able to enroll in group health plan coverage based on the initial loss in coverage through a HIPAA Special Enrollment Right and are still able to enroll due to deadline extensions under the joint IRS and DOL relief
• They have had an opportunity to enroll in a group health plan through an open enrollment, in which the coverage would be effective on or after 04/01/2021

Extended Coverage

If a QB’s original 18 months of COBRA was extended (due to disability, a second qualifying event, or additional coverage under state continuation), and any or all of the extension period is between 04/01/2021 – 9/30/2021, this coverage is also eligible for premium assistance.

Reduction in Hours, Involuntary Termination, or Voluntary Termination

Questions 21-34 address what is considered a reduction in hours, involuntary termination, and a voluntary termination. Here are some examples.

Reduction in Hours (Eligible for Subsidy)	Voluntary or involuntary reduction in hours
Involuntary Termination (Eligible for Subsidy)	Unilateral authority of the employer exercised to terminate the employment (other than gross misconduct) Employee resignation from employment due to employer action that results in a material negative change in the employment relationship Employee resignation (seemingly a voluntary termination), but (even though the employee was willing and able to continue working) they knew that if they did not resign they would be terminated Termination due to absenteeism from work due to illness or disability Involuntary termination for cause  Employee resignation from employment due to a change in geographic location of employment End of employment contract when the employee is otherwise willing and able to continue the employment relationship and there was a possibility of extending employment or renewing the contract
Voluntary Termination (Not Eligible for Subsidy)	Retirement Employee resignation from employment because of a “good reason” (concerns about workplace safety due to health condition of employee or family member), unless the employer’s action (or inaction) resulted in a material negative change in the employment relationship Employee resignation due to lack of daycare options including due to COVID-19 National Emergency Employee resignation due to a health condition of the employee or a family member End of employment contract if it was always understood that the contract would expire without a renewal option

 

Coverage Eligible for COBRA Premium Assistance

Questions 35-42 address coverage eligible for COBRA Premium Assistance.

The notice makes it clear that vision-only, dental-only, and health reimbursement arrangements (HRAs) are eligible for the subsidy. Retiree group health coverage that is treated as COBRA may be eligible, but only if the retiree coverage is offered the same way to similarly situated active employees.

If a health plan offered when an employee first terminated coverage is no longer available, the QB should be offered coverage under the most similar plan they would have been moved to if they had been an active employee at that time, even if the plan has a greater premium.

Beginning and End of COBRA Premium Assistance Period

Questions 43-50 address the start and end of the premium assistance.

The notice states that the premium assistance applies to the first period of coverage beginning on or after 04/01/2021 and continues to the end of the last period of coverage beginning on or before 09/30/2021. If a COBRA premium covers a period of time beginning mid-month, the start date of the premium assistance aligns with the first premium after 04/01/2021. Likewise, the last date of the premium assistance aligns with the coverage that includes 09/30/2021. (Refer to IRS Notice 2021-31 for examples).

Individuals can elect COBRA coverage during the second enrollment opportunity for a future effective date (such as 06/01/2021). Likewise, the subsidy begins at the start of coverage, not retroactively to 04/01/2021.

The subsidy applies retroactively for QBs who elect COBRA coverage after 09/30/2021, whose coverage is effective prior to 09/30/2021.

Extended Election Period

Questions 51-55 address the extended election period. These questions apply only to Federal COBRA.

The notice confirms that if only one individual of a family elected COBRA initially, the other QBs are able to enroll through the extended (or second) election period. If a QB enrolled in only some of the health plans that were offered through COBRA, they have the opportunity to enroll in other eligible health plans based on the original offer of COBRA through the second election period.

The second election period applies only to Federal COBRA. Premium assistance is available if a state law or program offers a similar extended election right and the individual satisfies the requirements of an AEI.

Extensions under the Emergency Relief Notices

Questions 56-59 address the extensions under the Emergency Relief Notices (joint IRS and DOL rule that applies an extension to certain deadlines during the outbreak period).

The deadline extensions do not apply to the election of COBRA premium assistance or the second election period. AEIs have 60 days to elect coverage and apply for premium assistance. The extension does not apply to employers when furnishing the subsidy notice and second election opportunity.

If a QB elects coverage retroactively to their original COBRA event, rather than through the second election opportunity, they have to pay premiums for the retroactive coverage prior to 04/01/2021.

If an AEI elects coverage through the second election opportunity along with the premium assistance, they waive their right under the Emergency Relief Notices to later enroll in the coverage between their original qualifying event date and 03/31/2021, even if they are within their applicable deadline extension period.

Comparable State Continuation Coverage

Questions 61-62 address comparable state continuation coverage.

The notice clarifies that premium assistance under the American Rescue Plan Act is available for the duration of coverage through state continuation based on a reduction in hours or involuntary termination, even if the duration differs from what is offered by COBRA.

For plans that are not subject to COBRA and are only subject to state continuation, the insurer providing the coverage is the premium payee. This means the employer is not eligible to take the assistance credit, even if the employer must pay the full premium to the insurer.

Calculation of COBRA Premium Assistance Credit

Questions 63-70 address determining how much of a credit may be requested.

The total amount of the credit is the amount that the AEI would have paid if the premium assistance were not in affect. This includes the total cost of the premium plus any administrative costs that apply (generally 2% admin fee), but does not include any employer subsidy provided. If an employer subsidy is in place and the AEI is only responsible for a portion of the premium, only that portion the AEI is responsible for is eligible through the tax credit.

A credit may not be obtained for individuals on continuation coverage who do not qualify as QBs under Federal COBRA, even if state continuation coverage provides those individuals with continuation coverage rights.

If the COBRA coverage covers AEIs and individuals who are not AEIs, only the cost of the premium associated with AEIs is available as a credit. If the cost of coverage increases to add the individuals who are not AEIs, then that portion of the premium is not available as a credit.

Claiming the COBRA Premium Assistance Credit

Questions 71-86 address who is eligible to claim the COBRA premium assistance credit and how they can request it.

The premium payee is eligible to claim the tax credit. The premium payee is one of the following:

• A multi-employer plan
• An employer maintaining a plan subject to Federal COBRA
• An insurer providing a plan that is not a multi-employer plan or a plan subject to Federal COBRA (generally a fully insured plan subject to state continuation)

Any premiums that the premium payee had to pay in that quarter for coverage periods that began prior to the end of the quarter may be credited to the payee using the Form 941. The premium payee can request an advance of the credits by filing Form 7200.

The premium payee must keep records to substantiate any premium assistance credits they claim.