Guidance from the IRS on COBRA & ARPA
In an earlier blog, we highlighted the COBRA premium subsidy that was provided under the American Rescue Plan Act. As expected, the IRS has now issued further guidance that provides additional clarification on the subsidy. Notice 2021-31 has been released and addresses some of the many questions that have been outstanding since the passage of the new law. There is an extensive list of questions and answers in the newly released notice, which employers are encouraged to review.
Listed below are some key takeaways:
- The notice clarifies that the extended election period only applies to group health plans that are subject to federal COBRA, and not to plans that are only subject to state mini-COBRA laws, unless those states provide similar extended election opportunities. State continuation laws generally apply to employers that have fewer than 20 employees. In the case of state continuation coverage, the subsidy would only be available to those individuals who had already elected continued coverage prior to April 1, 2021, or those who are newly eligible on or after April 1, 2021.
- An employer that sponsors a fully insured health plan that is subject only to state mini-COBRA laws, and not federal COBRA, is not considered the payee for purposes of the premium tax credit. In this case, the insurer will be entitled to the tax credit. Employers are encouraged to coordinate with their insurers on this topic.
- Employers may require that individuals self-certify that they qualify as Assistance Eligible Individuals (AEIs), and they can rely on these attestation forms as substantiation for the premium tax credit. The Department of Labor has created a model form that employers can use to determine eligibility. Employers who claim the premium assistance credit will need to retain documentation to support the credits.
- Individuals can become an AEI more than once. If an individual is eligible for the COBRA subsidy, and then subsequently becomes eligible for another group health plan, that individual would no longer qualify for the subsidy. If, however, he or she then loses coverage under another qualifying reason, he or she may continue to be treated as an AEI during the subsidy period.
- The notice further clarifies the definition of being eligible for another group health plan or Medicare for purposes of disqualifying them from the subsidy. It explains that an individual is only eligible for another plan if he or she is able to enroll in that plan at that time. As an example, if an individual had initially waived coverage under a new employer’s group health plan (or spouse’s plan), and he or she is not currently eligible to enroll in that plan until the next open enrollment date, this individual would be deemed an Assistance Eligible Individual, and entitled to the premium subsidy, until the earlier of September 30, 2021 or the date of the new employer’s open enrollment effective date.
- When determining whether an involuntary termination of employment has occurred, employers may need to consider resignations due to a material negative change in the employment relationship, acceptance of severance package, or early retirement.
Employers may claim the credit on IRS Form 941 or Form 7200. Employers who are claiming the tax credit for unpaid premiums may claim the amount equal to what the AEI would have been required to pay. This may include administrative costs (typically defined as 102% of the total premium) if that is what that AEI would have had to pay.
Employers should review the new IRS guidance and ensure they are properly identifying their Assistance Eligible Individuals and providing the appropriate notices to comply with the new law.