IRS Provides Additional Guidance on COBRA Subsidies

COBRA

by ProBenefits

Notice 2021-46
The IRS recently issued additional guidance relating to the temporary COBRA premium assistance provisions enacted under the American Rescue Plan Act of 2021 (ARP). The latest Notice, which supplements the extensive guidance issued by the IRS in May in Notice 2021-31 (our discussion of Notice 2021-31 can be found here), clarifies the scope of the relief available to AEIs (Assistance Eligible Individuals). It also provides additional instruction to employers, so that they may appropriately determine the entity that is entitled to claim the premium assistance tax credit. See our dedicated ARP COBRA Subsidy Information for Partners page for links to a more detailed description of the ARP COBRA subsidy and other useful information.

Once again, the IRS guidance is presented in the form of Q&As, which are separated into the following categories:

  • Eligibility for COBRA Premium Assistance – Extended Coverage Periods (Q&A 1)
  • End of COBRA Premium Assistance Period – Dental and Vision Coverage (Q&A 2)
  • Comparable State Continuation Coverage – Coverage for a Subset of State Residents (Q&A 3)
  • Claiming the COBRA Premium Assistance Credit – Additional Clarification on the Entity That May Claim the Credit (Q&As 4-11)

The highlights from the Notice are as follows:

Eligibility for COBRA Premium Assistance – Extended Coverage Periods (Q&A 1)
This Q&A serves as a reminder that an individual who is entitled to elect COBRA continuation coverage for an extended coverage period (due to a disability determination, second qualifying event, or an extension under State mini-COBRA) is also subject to the extended notification deadlines under the Outbreak Period relief. Thus, COBRA premium assistance is available to such an individual, to the extent the extended coverage period falls between April 1, 2021 and September 30, 2021 (the Subsidy Period), even if the individual has not yet notified the plan or the carrier of the individual’s intent to elect extended COBRA continuation coverage.

Example: An individual who was involuntarily terminated from employment and elected COBRA continuation coverage effective October 1, 2019, later loses such coverage on March 31, 2021, when the 18-month COBRA continuation coverage period expires. On March 1, 2020, the Social Security Administration issued a disability determination letter stating that the individual was disabled as of November 1, 2019. Because of the disability determination, the individual is entitled to an additional 11 months of COBRA continuation coverage under the extended coverage rules. However, the individual failed to notify the plan of the disability determination within the 60-day period following the issuance of the disability determination letter (i.e., by April 30, 2020) as required by COBRA. Nevertheless, under the Outbreak Period relief provisions, the individual has one year and 60 days from the issuance of the disability determination letter to notify the plan of the disability determination and to extend COBRA continuation coverage. On April 10, 2021, the individual notifies the plan of the disability determination and elects ongoing coverage beginning April 1, 2021. Assuming the individual is not eligible for other disqualifying group health plan coverage or Medicare, the individual is an AEI and is entitled to COBRA premium assistance.

End of COBRA Premium Assistance Period – Dental and Vision Coverage (Q&A 2)
This Q&A confirms that an AEI who is receiving COBRA premium assistance for dental only and/or vision-only coverage will lose eligibility for such premium assistance, if such individual becomes eligible to enroll in Medicare or other disqualifying group health plan coverage. This will be the case even if the Medicare coverage or other disqualifying group health plan coverage does not provide dental or vision benefits.

Comparable State Continuation Coverage – Coverage for a Subset of State Residents (Q&A 3)
This Q&A serves as a reminder that the temporary premium assistance is also available to individuals enrolled in continuation health coverage under State programs that provide for coverage comparable to COBRA continuation coverage. In addition, this Q&A confirms that a State program does not fail to provide “comparable coverage” solely because the program covers only a subset of State residents (for example, only employees of a State or local government unit), as long as the program provides coverage that is otherwise comparable to Federal COBRA.

Claiming the COBRA Premium Assistance Credit – Additional Clarification on the Entity That May Claim the Credit (Q&As 4-11)
These Q&As supplement prior IRS guidance relating to the premium assistance tax credit by:

  • Confirming the general rule that the common law employer maintaining the plan under which an AEI loses coverage is the premium payee and the entity entitled to claim the premium assistance tax credit (See Q&A 4);
  • Confirming that when a plan is subject to Federal COBRA and state-mandated continuation coverage, the common law employer is the premium payee entitled to claim the premium assistance tax credit (even if the state-mandated continuation coverage requires AEIs to pay premiums directly to the carrier) (See Q&A 5);
  • Clarifying that when a group health plan (other than a multiemployer plan) that is subject to COBRA covers employees of two or more members of a single controlled group, each common law employer that is a member of the controlled group is (subject to certain exceptions) the premium payee entitled to claim the premium assistance tax credit with respect to its employees or former employees (even though all of the members of a controlled group are treated as a single employer for employee benefit purposes) (See Q&A 6);
  • Clarifying that when a plan (other than a multiemployer plan) that is subject to COBRA covers employees of two or more unrelated employers (i.e., as in the case of a MEWA), the premium payee entitled to claim the premium assistance tax credit is (subject to certain exceptions) the common law employer (See Q&A 7);
  • Clarifying that a third-party payer (such as a PEO) may be treated as the premium payee for purposes of claiming the premium assistance tax credit, if the third-party payer satisfies the conditions set forth in Q&A 82 of Notice 2021-31. However, an entity that provides health benefits to employees of another entity but is not a third-party payer of such employees’ wages (such as a MEWA), will not be treated as a third-party payer (or premium payee) for purposes of claiming the premium assistance tax credit (See Q&A 8);
  • Confirming that, in the event of a merger/acquisition in which the selling group is obligated to provide COBRA continuation coverage to AEIs affected by the sale/merger, the seller (i.e., the entity in the selling group that maintains the plan) is the premium payee entitled to claim the premium assistance tax credit (See Q&A 9);
  • Clarifying that, in the event of a merger/acquisition, if the common law employer (which may be the buyer) is not obligated to make COBRA continuation coverage available to AEIs, the common law employer is not entitled to the premium assistance tax credit after the business reorganization. (See Q&A 9);
  • Clarifying that, if a State agency is obligated to make COBRA continuation coverage available to employees of various agencies of the State and local governments within the State, and the AEIs would have been required to remit COBRA premium payments directly to the State agency in the absence of the COBRA premium assistance, the State agency is the premium payee entitled to claim the premium assistance tax credit (See Q&A 10); and
  • Clarifying that, if a fully insured plan that is not subject to federal COBRA is offered by an employer through a SHOP, the common law employer (rather than the insurer) is treated as the premium payee eligible to claim the premium assistance tax credit with respect to coverage in the plan if it satisfies the conditions identified in Q&A 11 (See Q&A 11).