May 21, 2021 | General | Posted by Bob Greene, Senior HR Industry Analyst at Ascentis
COBRA Premium Assistance under the American Rescue Plan Act: The Devil’s in the Details (Part I)
When the American Rescue Plan Act was signed into law on March 11, 2021, employers subject to the health insurance continuation requirements of the Consolidated Omnibus Budget Reconciliation Act of 1986 (COBRA) were introduced to an unprecedented change in the scope of that law: a 100% subsidization of the premiums due from most COBRA qualified beneficiaries for the coverage period from April 1 through September 30, 2021. If HR and benefits professionals thought that the rules around this new requirement would be relatively straightforward, on May 18, the IRS proved that assumption to be wrong with the drop of IR Notice 2020-31 (contained in IR News Release 2021-115). Weighing in at 41 pages and 86 separate questions and answers, this Notice includes many new details of which employers must be aware.
The Notice is split into 12 separate categories of subject matter, and further subdivided into multiple Q-and-As. In this blog, we will summarize each section, with reference to the specific Q-and-A (where applicable) where readers can find more information.
Eligibility for Cobra Premium AssistanceWhat We Already Knew: Certain qualified beneficiaries eligible for and electing COBRA coverage between April 1 and September 30, 2021, resulting from a reduction in hours or involuntary termination by the employer are considered assistance eligible individuals for the 100% premium subsidy.
What’s Clarified in the New Guidance: Q&A-2 clarifies that gross misconduct, as an involuntary termination reason disqualifies an individual from assistance eligibility, because it disqualifies them from COBRA continuation entitlement. Other “for-cause” termination reasons qualify the individual for coverage and for assistance eligibility.
Q&A-3 brings to light the first of many “gotchas” under the new law: an individual can become assistance eligible more than once during the six-month entitlement period under the law! Separate qualifying events, occurring for a single individual, can re-qualify that person for assistance. The guidance offers the example of “Ex-employee 1” terminating April 1, 2021 and electing COBRA as of that date. On July 1, the ex-employee becomes eligible for a group health plan under their spouse’s coverage, ceases to be assistance-eligible as of that date, ends their COBRA coverage and enrolls under the spouse’s coverage as of that same date. A month later, on August 1, the spouse is involuntarily terminated from their employment, triggering a COBRA qualifying event and assistance eligibility for both employee and spouse. The original employee starting this example (Ex-employee 1) has qualified for the COBRA subsidy twice during the six-month period. Although in the example provided, the two qualifying events occur under two different employers’ plans, what if both spouses worked for the same employer?
Q&A-4 through 7, and Q&A-84 address the extent to which the original law relies on employees and ex-employees to voluntarily report changes in their coverage circumstances which might qualify them, or disqualify them, for premium assistance. Taken together, these Q&As clarify that employers are permitted to require individuals to provide a self-certification or attestation as to their qualification for premium assistance (where such qualification is not obvious, as in the case of a corporate-initiated involuntary termination) and/or in the case of a disqualification from assistance eligibility, as is the case with new eligibility for another group health plan or Medicare. While these Q&As do not go further and mandate employers require such documentation, Q&A-84 does reinforce that employers must retain documentation supporting the tax credits they have taken. That answer states: “…Records substantiating the premium payee’s eligibility for the credit must be maintained, either by the third-party payer or the premium payee. A premium payee, or a third-party payer that is claiming the credit on behalf of a client that is a premium payee, must, at the IRS’s request, provide to the IRS records that substantiate eligibility for the credit, including documentation demonstrating that individuals were eligible for the COBRA premium assistance.” This answer (#84) goes on to clarify that, in circumstances where assistance-eligible individuals who lose eligibility (i.e., by qualifying for other coverage or Medicare) and fail to inform the plan sponsor of that lost eligibility, will be assessed the penalties owed for such failure and the premium assistance improperly received (NOT the employer or plan sponsor), the premium payee or third-party payer claiming the tax credit will be liable for the employment taxes due on that amount.
Q&A-11 reviews the coordination of waiting periods with premium assistance availability, and emphasizes that COBRA premium assistance is available to an individual losing coverage for a qualified reason, whose spouse is in a waiting period for new coverage (e.g., with another employer), but loses eligibility the moment that waiting period ends and the spouse enrolls, making the ex-employee eligible under the spouse’s plan, even if the spouse declines coverage for the ex-employee.
Q&A-18 is very important to employers still offering retiree health benefits to their employees. The question is phrased: “If retiree health coverage (that is not COBRA continuation coverage) is offered to a potential Assistance Eligible Individual, how does that offer affect eligibility for COBRA premium assistance?” The answer may be seen by some as “splitting hairs”, but they are important hairs! If the retiree health benefit is offered under the same group health plan as for active employees, then the offer of retiree health coverage has no impact, and an otherwise eligible individual will retain their eligibility for COBRA premium assistance. On the other hand, if the retiree health coverage is offered under a separate plan, then they lose eligibility for premium assistance, because they qualify for “other group health plan coverage”.
Q&A-19 covers the possibility that an employer’s COBRA coverage may include individuals who are not qualified beneficiaries under the law (i.e., spouses and dependent children.) The answer clarifies that, to the extent that premiums paid by the continuee are attributable to any non-qualifying beneficiaries, those premiums are not eligible for premium assistance. It further refers the reader to Q&A-68 for information on the “proration” of premiums covering both assistance-eligible and -ineligible individuals.
Reduction in HoursWhat We Already Knew: Employer-imposed reductions in hours resulting in loss of health plan coverage are COBRA-qualifying events that also entitle the individual to premium assistance under the ARPA.
What’s Clarified in the New Guidance: Q&A-21 through 23 clarify details relating to what constitutes a reduction in hours under the ARPA COBRA rules. They tell us that reductions in hours may be voluntary or involuntary (unlike terminations which must be involuntary) (Q&A-21), and that reductions in hours as a result of employer-imposed furloughs (Q&A-22), and reductions in hours as a result of a lawful strike, employer lockout or work stoppage (Q&A-23), are all premium assistance qualifying circumstances.
Involuntary TerminationWhat We Already Knew: Voluntary termination of employment will disqualify an individual from premium assistance, even though under most circumstances they will be COBRA qualifying beneficiaries. So when viewing terminated/terminating employees as a group, the number of premium assistance qualifiers will be a subset of the COBRA entitlement qualifiers.
What’s Clarified in the New Guidance: Q&A-24 through 34 cover issues relating to involuntary termination of employment. They clarify that:
- employee voluntary retirement, generally, is not considered involuntary termination (Q&A-26), except where the employee can show that absent their decision to retire, the employer would have terminated them (i.e., “forced” retirement)
- death of the employee is not considered involuntary termination that would entitle the covered surviving spouse and/or dependent children assistance eligibility (Q&A-33)
- “voluntary” resignation as a result of an employer’s imposed material reduction in hours (Q&A-32), or participation in a “window program” of (perhaps sweetened) severance arrangements designed to induce employee’s to voluntarily sever (Q&A-29) does qualify the impacted individual for premium assistance
- voluntary resignation resulting from a material change to the employee’s geographic location of employment qualifies as involuntary termination and does entitle them to premium assistance
Coverage Eligible for COBRA Premium AssistanceWhat We Already Knew: Generally, group health plans offered by employers covered by COBRA, are subject to the 100% subsidy of COBRA premiums for the period April 1 through September 30, 2021.
What’s Clarified in the New Guidance: Q&A-35 through 42 provide much-needed further detail about the plans that do, and do not, qualify for premium assistance. Here is a summary table of the guidance given in this section:
Finally, an important clarification is offered by the guidance on qualifying beneficiaries electing more expensive plan options under COBRA than they had on the day before the qualifying event occurred. Q&A-41 makes clear that only when the continuee elects an option that is less than or equal to the premium charged for the option they had at the time of the qualifying event, will premium assistance apply. (Note that there is an exception to this rule in the case where the option the employee had at the point of the qualifying event is no longer available to them during the COBRA continuation period, as might be the case for an Open Enrollment period starting during that period with a change of plan construction, carriers, or electable options. See Q&A-42 and 69).
The example of this rule provided by the guidance is illuminating:
“Example: An individual is an Assistance Eligible Individual who was enrolled in a plan with an $800 per month COBRA premium at the time of the qualifying event. The employer sponsoring the plan permits Assistance Eligible Individuals to enroll in other coverage pursuant to § 9501(a)(1)(B) of the ARP. Three other coverages are offered to active employees similarly situated to the individual, none of which are excepted benefits, a QSEHRA or a health FSA. The COBRA premiums for the other coverages are $700, $750 or $1,000 per month. The individual may enroll in the $700 or $750 per month options with COBRA premium assistance. If the employer allows, the individual may enroll in the $1,000 per month coverage option but that coverage will not be eligible for the COBRA premium assistance.”
We’ll end Part I here and publish a second part of this blog within the next week to address the remaining guidance offered by Notice 2021-31. In the meantime, to download or view the full text of IRS Notice 2021-31, you can go here: https://www.irs.gov/pub/irs-drop/n-21-31.pdf
Bob Greene currently serves as Senior HR Industry Analyst at Ascentis. Bob’s 40 years in the human capital management industry have been spent in practitioner, consultant and vendor/partner roles. As practitioner, he managed payroll for a 5,000-person bank in New Jersey. As consultant, he spent 8 years advising customers in HRMS, and payroll and benefits system design as well as acquisition strategies. Bob also built a strategic HCM advisory practice for Xcelicor (later acquired by Deloitte Consulting.)