On July 26, 2021, the IRS published Notice 2021-46 (the Notice), which supplements the guidance provided in Notice 2021-31 regarding the temporary Consolidated Omnibus Budget Reconciliation Act (COBRA) premium assistance1 (COBRA subsidy) established by the American Rescue Plan Act of 20212 (ARPA or the Act). While the Notice is not as expansive as Notice 2021-31,3 it clarifies several lingering questions with respect to the availability of the Act's COBRA subsidy in "Q&A" format. Notably, the new Notice addresses more nuanced questions with regard to the COBRA subsidy, including extended COBRA continuation coverage periods, loss of eligibility for the COBRA subsidy, and which entities are eligible to claim the COBRA premium assistance credit.
This alert provides a brief summary of the additional questions and answers identified in the Notice that pertain to COBRA subsidy eligibility during the subsidy window. As was the case with Notice 2021-31, this guidance will help employers accurately determine who is an assistance eligible individual, and which entity is entitled to claim the COBRA premium assistance credit in respect of an assistance eligible individual. Like Notice 2021-31, the Notice does not cover all components of the Act's COBRA subsidy provisions. Government agencies may continue to promulgate additional COBRA subsidy guidance prior to the end of the subsidy window.
COBRA Subsidy: A Refresher
What is the COBRA Subsidy?
"Assistance eligible individuals" (AEIs) (as defined below) and their beneficiaries may be eligible to receive the Act's temporary COBRA subsidy. The relevant window during which such individuals can receive the subsidy is April 1, 2021 through September 30, 2021.4 During the subsidy window, an AEI is treated as though they paid the full amount of their COBRA premium for the specified coverage (i.e.,100%). The amount that the employer, insurer, or multiemployer plan pay in respect of this subsidy is refundable via a tax credit against its share of Medicare taxes under §6432 of the Code. The amount of the subsidy is not included in an AEI's gross income.
Who are Assistance Eligible Individuals?
The Act defines an Assistance Eligible Individual as an individual: (1) who is a qualified beneficiary with respect to a period of COBRA continuation coverage during the subsidy period (April 1, 2021 through September 30, 2021), (2) who is eligible for that COBRA continuation coverage by reason of are duction of hours or involuntary termination (other than gross misconduct), and (3) who elects COBRA continuation coverage. A qualifying event other than a reduction in hours or an involuntary termination does not qualify someone for the COBRA subsidy.
How can a qualified beneficiary become an AEI?
An individual must: (1) be covered under the employer's group health plan on the day before the reduction in hours or involuntary termination of employment, and (2) lose eligibility for the coverage due to the reduction in hours or involuntary termination of employment.
When is the COBRA subsidy not available to an AEI?
If an individual is eligible for coverage under any other group health plan or Medicare, or if an individual becomes eligible for a group health plan or Medicare while receiving the subsidy, the assistance is unavailable or stops at that time. If an individual becomes eligible for other coverage while receiving the subsidy, the individual must notify the plan providing COBRA continuation coverage of their eligibility for other coverage, or otherwise be subject to a penalty of $250 for each failure (the penalty can eventually equal the greater of $250 or 110% of the subsidy improperly received after eligibility for it ended).
What about the extended election period?
As provided in the Act, those individuals who did not have a COBRA continuation coverage election in effect on April 1, 2021 but would have been AEIs had they made an election, or those who previously elected COBRA continuation coverage and discontinued it before April 1, 2021, are eligible for the subsidy. This group of AEIs is offered an "extended election period." The extended election period continues for 60 days after the individuals receive notice of such election period. Notably, the subsidy period for these individuals will not continue past the maximum period of COBRA continuation coverage that would have been required had they elected COBRA continuation coverage initially upon the qualifying event or had not discontinued it
Footnotes
1 The term "COBRApremium assistance" is used in the Notice. For clarity, this alert refers to this as the COBRA subsidy.
2 H.R.1319, Pub. Law 117-2
3 For more information on the legislation promulgated in response to the COVID-19 pandemic, please see https://jenner.com/library/publications/20982 and the resources located at https://jenner.com/practices/447/library.
4 Please note that some employers may have periods of coverage that are shorter than one month (such as two weeks). As a result, coverage may begin after April 1, 2021 and end after September 30, 2021 depending on the period with respect to which premiums would have normally been charged by the plan. See Q&A#43 in Notice 2021-31.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
