COBRA Premium Assistance-What & Why & When?

COBRA premium assistance under the American Rescue Plan Act of 2021 (“ARPA”) became available to Assistance Eligible Individuals on April 1, 2021. Since that time, employers and
benefit advisors have generated a number of questions about the mechanics of the subsidy and tax credit scheme. IRS Notice 2021-31, released May 18, provides some welcome guidance in the
form of a lengthy Q&A format. See https://www.irs.gov/pub/irs-drop/n-21-31.pdf.

The following is our attempt to provide employers with a “COBRA Premium Subsidy 101” basic education so that you can be aware of your obligations in terms of the new Notice requirements
and how to administer an individual’s requests for their subsidy.

WHAT IS THE ARPA SUBSIDY?

ARPA provides Assistance Eligible Individuals a 100% reduction in continuation coverage (COBRA and mini-COBRA) premiums from April 1 through September 30, 2021.
An Assistance Eligible Individual (“AEI”) is anyone who has suffered an involuntary termination of employment or an involuntary reduction in hours that caused the loss of health coverage since November 1, 2019.
ARPA provides a corresponding tax credit for entities that maintain group health plans, such as employers, multiemployer plans, and insurers.
The subsidy is available with respect to small group continuation coverage, sometimes called “mini-COBRA,” as mandated by state laws. Washington and Idaho are 2 of only 9
states that do not have a mini-COBRA law. In Washington, small group insurers are required to offer employers the option to include a 6-month mini-COBRA, but it is not mandatory. Mini-COBRA is mandatory in Oregon.
The COBRA premium subsidy applies to all COBRA-eligible benefit plans with the exception of health
flexible spending accounts (“FSA”). COBRA premiums are fully subsidized for group vision, group dental, and health reimbursement arrangements (“HRA”), regardless of whether the
employer pays for a portion of the premiums for active employees. (Q&A 36, 37).

WHAT MUST AN EMPLOYER DO BY MAY 31?

Employers must notify all potential Assistance Eligible Individuals of the availability of the subsidy program by sending a Notice in Connection with Extended Election Period accompanied by the Summary of COBRA Premium Assistance Provisions under the American Rescue Plan Act of 2021 by May 31. Model Notices in English and Spanish are available at: https://www.dol.gov/agencies/ebsa/laws-and-regulations/laws/cobra/premium-subsidy.
Employers administering COBRA in-house must update their General Notice and COBRA Continuation Election Notice to include information about the availability of the subsidy and instructions on how to apply for it. The Summary of COBRA Premium Assistance Provisions document should also be included with the revised General Notice.

WHAT IS AN “INVOLUNTARY TERMINATION”?

Involuntary termination is any severance from employment due to the independent exercise of the unilateral authority of the employer, other than due to the employee’s implicit or explicit request, where the employee was willing and able to continue performing services. (Q&A 24).
Termination for cause, except in instances of gross misconduct, is an involuntary termination. (Q&A 27).
An employer’s decision to not renew an employee’s contract, including employees whose employer is a staffing agency, is generally considered an involuntary termination unless both parties understood at the time they entered into the expiring contract that the contract was for specific services over a set term and would not be renewed. (Q&A 34).
Involuntary termination also occurs when an employer takes action to terminate an individual’s employment while the individual is absent due to an illness or disability if, before the action, there is a reasonable expectation the employee will return to work after the illness has subsided. (Q&A 25).
Retirement is generally not considered an involuntary termination. (Q&A 26).

WHEN DOES SUBSIDIZED COVERAGE START?

Any AEI who is already enrolled in COBRA coverage should receive the 100% subsidy beginning April 1. If an AEI already paid premiums for April and May, an employer should refund that money to the AEI at its earliest opportunity.
Any AEI who did not take COBRA when originally eligible may enroll prospectively as of April 1, 2021. This is a huge departure from standard COBRA procedure because it allows an individual to have gone without group coverage from the time of termination until April 1. AEIs have 60 days from the date of receipt of the Extended Election Period Notice to exercise this option. As an
example, if an employer sends the required Notice on May 31, an AEI could apply for the subsidy on July 30 and be eligible to enroll retroactively to April 1, 2021, with the premiums 100% subsidized.
Individuals who previously elected COBRA but then discontinued coverage before April 1 can re-enroll on April 1, 2021.

WHEN DOES SUBSIDIZED COVERAGE END?

The COBRA premium subsidy ends September 30, 2021.
However, the subsidy does not extend the original 18-month maximum COBRA coverage period. An example is illustrative: An AEI who terminated December 31, 2019, could have elected COBRA for 18 months, or until June 30, 2021. That individual may now enroll in subsidized COBRA from April 1 through June 30, 2021.
An individual’s eligibility for (not enrollment in) another group health plan or Medicare disqualifies them from AEI status. For instance, a COBRA Qualified Beneficiary (“QB”) who could be enrolled in a spouse’s group health plan but chooses not to be enrolled because of the cost is not eligible for the subsidy. As a wrinkle, a QB who enrolled in another group health plan since his termination, but who has since lost the other group coverage, remains an AEI for the purpose of the original employer’s plan. (Q&A 10).

WHAT DOCUMENTATION SHOULD AN EMPLOYER REQUIRE?

Employers are not required to automatically provide the premium subsidy to AEIs. In fact, an employer claiming the tax credit must have backup documentation on file indicating an AEI’s
eligible status. The DOL’s Model Notice provides a template for AEI self-certification regarding eligibility and that they are not eligible for other group coverage or Medicare. An employer may rely on such attestations so long as it does not have actual knowledge that the information provided is false. (Q&As 4-7).

WHO PAYS THE SUBSIDY?

For employers with fully insured or self-funded group health plans, other than those in multi-employer plans, the employer pays the subsidy to the insurer or to the Plan.
An employer is entitled to a credit for premiums not paid by an AEI (plus the administrative charge, capped at 2%) for any period of coverage where the subsidy is claimed.
An employer claims the credit by reporting the dollar amount and the number of individuals receiving COBRA premium assistance on Form 941, Employer’s Quarterly Federal Tax Return.
In states with mini-COBRA laws, the insurer is required to provide the subsidy(not the employer). Small group employers are advised to make inquiries of their benefits broker or insurance company to find out how their respective insurance company is planning to handle the administration of the subsidy program.

Takeaways

Failure to provide the Notice in Connection with Extended Election Period accompanied by the Summary of COBRA Premium Assistance Provisions under the American Rescue Plan Act of 2021 to AEIs by May 31, 2021, may subject the employer to an excise tax penalty of $100 per affected individual per day. Accordingly, if you have not already given this matter your attention,
we urge you to do so.
May 18, 2021, IRS Notice 2021-31 provides multiple scenarios and does a good job of anticipating the situations employers will find themselves in.
Employers must notify all potential Assistance Eligible Individuals of the availability of the subsidy program by sending a Notice in Connection with Extended Election Period accompanied by the Summary of COBRA Premium Assistance Provisions under the American Rescue Plan Act of 2021 by May 31.
Any AEI who is already enrolled in COBRA coverage should receive the 100% subsidy beginning April 1.
The COBRA premium subsidy ends September 30, 2021.
For employers with fully insured or self-funded group health plans, other than those in multiemployer plans, the employer pays the subsidy to the insurer or to the Plan.

If you have questions regarding an individual’s eligibility for the subsidy, call our friends at The Cicotte Law Firm in Kennewick, WA who graciously provide us with special bulletins about items that affect us and the businesses we help. They represent employers in several states in all aspects of employee benefits law—both retirement plans and welfare arrangements. In addition to ERISA matters, the Firm handles varied employment, labor, tax, and corporate issues. They can be reached at (877) 783-6699.

May 2021

This blog does not provide legal, financial, accounting, or tax advice. This blog provides practical information on the subject matter. The content on this blog is “as is” and carries no warranties. TaxMedics does not warrant or guarantee the accuracy, reliability, and completeness of the content on this blog. Please contact us directly to discuss how this information may be used based on your actual facts and circumstances.