On July 26, 2021, the U.S. Internal Revenue Service (IRS) issued 11 additional Q&As regarding the Consolidated Omnibus Budget Reconciliation Act (COBRA) premium assistance and tax credit provisions of the American Rescue Plan Act of 2021 (ARP). Notice 2021-46 expanded the guidance issued in Notice 2021-31, which was discussed in our previous Sidley Update Got Questions About COBRA Premium Subsidies? IRS Issues Long-Awaited Answers. Terms used below but not defined have the same meanings as those terms have in our prior Sidley Update unless indicated otherwise.
ARP generally provides temporary COBRA premium assistance for the full cost of coverage for assistance-eligible individuals (AEIs). AEIs generally include COBRA-eligible individuals who lost group health plan coverage due to an employee’s involuntary termination of employment or reduction in hours (and who are not eligible for other group health coverage or Medicare). AEIs are treated as having paid the full amount of any applicable COBRA premium for coverage during the period beginning April 1, 2021, and ending September 30, 2021. Persons to whom such COBRA premiums would otherwise have been paid (premium payees) are then entitled to refundable tax credits against their share of Medicare taxes.
Set forth below are some of the highlights of Notice 2021-46:
- It clarified the availability of COBRA premium assistance for individuals who are entitled to an extended period of COBRA coverage due to a disability determination, a second qualifying event, or an extension under State mini-COBRA. As long as the original qualifying event was an involuntary termination of employment or reduction in hours and all or some portion of the extended period of coverage falls between April 1, 2021, and September 30, 2021, then COBRA premium assistance is available to an AEI who is entitled to elect such extended coverage. This is the case even if the individual had not notified the plan or insurer of the intent to elect extended COBRA coverage before the start of such period, for example, due to the extension under the Emergency Relief Notices.
- It clarified that an individual ceases to be an AEI if he or she becomes eligible for any other disqualifying group health coverage or Medicare, even if that coverage does not include all of the AEI’s previously elected benefits. For example, COBRA premium assistance for previously elected vision-only or dental-only coverage would end due to eligibility for Medicare, which generally doesn’t include vision or dental benefits.
- COBRA premium assistance is available to qualifying individuals enrolled in State mini-COBRA programs as long as such programs provide coverage comparable to Federal COBRA continuation coverage. The notice confirmed that State mini-COBRA programs are not disqualified from being comparable to Federal COBRA continuation coverage solely by reason of covering only a subset of state residents (e.g., only employees of a state or local government unit).
- It clarified that the common-law employer, not the insurer, is the premium payee where state-mandated continuation coverage comparable to Federal COBRA is provided under a group health plan that is also subject to Federal COBRA (e.g., a period of state-mandated continuation coverage that extends beyond the Federal COBRA period). As such, the insurer is not entitled to claim the premium assistance credit even when the state-mandated continuation coverage would require that payments to be made directly to the insurer after Federal COBRA coverage ends.
- It clarified that where a group health plan (other than a multiemployer plan) subject to Federal COBRA covers employees of two or more employers, each common-law employer is generally treated as the premium payee entitled to claim the premium assistance credit with respect its own employees and former employees, even where such common-law employers are part of a controlled group. However, exceptions include certain situations in which a third-party payer (as described in Q&A-82 of Notice 2021-31) is treated as the premium payee and business reorganizations where the selling group remains obligated to provide COBRA coverage. In the latter case, the entity in the selling group that maintains the group health plan, not the common-law employer following the business reorganization, is the premium payee.
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