IRS Provides Crucial Insights Into COBRA Subsidy Administration

The IRS issued much anticipated guidance regarding the federal COBRA subsidy under the American Rescue Plan Act (ARPA). Under ARPA, the federal government is subsidizing 100% of COBRA premiums for qualified beneficiaries who otherwise would lose employer health coverage due to reduction in hours or involuntary termination. The subsidy is available from April 1, 2021 through September 30, 2021.

The IRS’s recent guidance, in the form of 86 Q&As, answers a broad array of questions about the COBRA subsidy—from who is eligible for the subsidy to the mechanics of how employers will claim the premium assistance credit for the cost of the subsidy. Employers may need to revisit how they are going to administer the ARPA COBRA subsidies in light of this guidance. Below are some highlights from the Q&As:

  • Involuntary termination and reduction in hours. While the determination is based upon the facts and circumstances, the IRS provides many helpful examples of situations that are considered involuntary terminations allowing for the ARPA COBRA subsidy, provided they cause a loss of coverage:
  • Resignation due to an involuntary reduction in hours (including furloughs) or a material change in workplace geography.
  • Retirement, if the employee was aware employment would have been terminated absent the retirement, and certain “window” programs.
  • Termination related to absence from work due to illness or disability if there was a reasonable expectation that the employee would return to work after the illness or disability had subsided.

Other situations are not involuntary terminations under the guidance and don’t allow for the COBRA subsidy:

  • Quitting due to concerns about workplace safety. Some employees may have involuntary terminations, however, if the employee can show a “constructive discharge” due to safety concerns.
  • Quitting due to lack of school or childcare due to the COVID-19 National Emergency. On the other hand, certain temporary leaves of absence due to lack of child-care qualify as a reduction in hours allowing for the subsidy, so long as the employment relationship is expected to continue and eligibility for group health coverage is lost.

A furlough is generally a reduction in hours allowing for the ARPA subsidy if it causes a loss of coverage.

  • Second qualifying event and disability extensions. The COBRA subsidy is available to an individual who has elected and remained on COBRA for an extended period beyond the initial 18 months due to a second qualifying event or disability, but only if the original COBRA qualifying event was an involuntary termination or reduction in hours.
  • Beginning of COBRA subsidy period. An assistance-eligible individual (AEI) may choose to elect coverage retroactively to the qualifying event date, retroactively to April 1st, or prospectively.
  • Outbreak Period extensions. Government guidance issued in response to the COVID-19 National Emergency requires plans to pause certain deadlines, such as deadlines for COBRA elections and premium payments, for the duration of the “Outbreak Period.” However, if an AEI elects COBRA with the subsidy, the individual must also elect or decline COBRA retroactive to the loss of coverage date within 60 days of receiving the ARPA extended election period notice. Outbreak relief to elect COBRA won’t be available after that timeframe. Payment of premiums may be delayed under the Outbreak Period extension.
  • Other coverage. Eligibility for other group health plan coverage or Medicare terminates eligibility for the ARPA COBRA subsidy. AEIs are not considered eligible for other group health plan coverage if they did not enroll in coverage during an initial or open enrollment period and are not able to enroll in the other group health plan coverage mid-year. However, a HIPAA Special Enrollment right that remains available due to the Outbreak Period relief will disqualify an individual from the subsidy. The guidance also addresses how retiree health coverage affects an individual’s eligibility for the ARPA COBRA subsidy.
  • Calculation of credit for the subsidy. Several Q&As emphasize that the credit for the subsidy is the amount that would have been charged to the AEI absent the federal subsidy. Employers who subsidize COBRA themselves, or who have other severance arrangements, should review carefully. Additionally, the credit for the subsidy should be reduced by the portion of the premium attributable to individuals who are not AEIs, such as certain dependents added during the COBRA period and domestic partners who are not eligible for COBRA.
  • Coverage eligible for the subsidy. Most group health plan coverage qualifies for the subsidy, including, for example, medical, dental, vision and HRAs. The guidance clarifies that retiree coverage may be eligible for the subsidy if offered under the same group health plan as the coverage made available to similarly situated active employees. Non-federal governmental plans, such as those maintained by states, municipalities, or other political subsidies may be eligible for the subsidy, but certain self-insured church plans are not.
  • Certification of AEI status and record retention. Employers may require and rely upon a self-certification, attestation or other documentation regarding eligibility for the subsidy and will need this documentation to substantiate eligibility for the premium assistance credit.

A detailed GRIST analysis will soon be available on Mercer’s Law & Policy Group – Our Thinking page

Rebecca Atkins
by Rebecca Atkins

Principal, Mercer Health

Patricia Farrell
by Patricia Farrell

Principal, Mercer Health

Sheryl Stime
by Sheryl Stime

Principal, Mercer

Jennifer Wiseman
by Jennifer Wiseman

Principal, Mercer’s Law & Policy Group

Register for Mercer US Health News to receive weekly e-mail updates.