IRS Addresses Questions About COBRA Premium Assistance Credits

The IRS recently provided new guidance for employers on the federal government’s 100-percent premium subsidy to eligible COBRA health care enrollees, for coverage between April 1 and Sept. 30.

IRS Notice 2021-31, released May 18, answers questions raised by employers, plan administrators and health insurers regarding the COBRA subsidy’s payroll tax credit. The subsidy was part of the American Rescue Plan Act (ARPA) signed into law in March.

The subsidy applies to assistance eligible individuals (AEIs) who elect COBRA health care continuation coverage following a reduction in hours or an involuntary termination of employment. The subsidy also is available during the April through September coverage period for employees eligible to elect continuation coverage under state laws, sometimes referred to as “mini-COBRAs,” even if employees have exceeded the 18 months of coverage generally available for COBRA under federal law.

Notice 2021-31 provides information to help employers, plan administrators and insurers understand the credit, including:

  • How to calculate the credit.
  • Which individuals are eligible.
  • When the premium-assistance period is.

By May 31, employers subject to COBRA must send a special election notice to AEIs who were still in their 18-month COBRA window in April 2021, explaining their eligibility to elect COBRA during the subsidy period and receive COBRA premium assistance.

Employers also must notify AEIs at least 15 days (but no more than 45 days) before their eligibility for the subsidy expires. For those who have not yet “run out the clock” on their COBRA eligibility, the subsidy expiration date is Sept. 30.

ARE THERE LIMITS ON ELECTING COBRA DURING THE SUBSIDY PERIOD?

Under the ARPA, a terminated worker who is eligible for assistance and who hadn’t elected COBRA coverage by April 1, or who elected COBRA coverage but then discontinued it, may elect COBRA coverage during a special enrollment period starting April 1 and ending 60 days after the date on which the COBRA notification was delivered.

WHEN IS A TERMINATION ‘INVOLUNTARY’?

The guidance clarifies that “a determination of whether a termination of employment is ‘involuntary’ is based on the facts and circumstances. or example, they wrote, involuntary termination “may include a resignation or termination designated as voluntary if the facts demonstrate that absent the voluntary termination, the employer would have terminated the employee’s employment.” However, “an involuntary termination generally would not include a retirement, death, or a resignation due to a child being unable to attend school or daycare due to COVID-19 closures.”

WHAT IF EMPLOYERS ARE NO LONGER SUBJECT TO COBRA DUE TO A DECREASE IN EMPLOYEES?

COBRA generally covers health plans maintained by private-sector employers with 20 or more full- and part-time employees. It also covers employee organizations or federal, state or local governments. State mini-COBRA laws often provide similar benefits for insured small employers not subject to federal COBRA.

The new guidance clarifies that “employers who had a decrease in employees, such that they are not subject to federal COBRA this year, still have to offer COBRA premium assistance based on their status as a larger employer in 2020 (for AEIs who were due an offer of COBRA in 2020).