IRS Issues Additional Guidance on COBRA Premium Assistance Under ARPA

The Internal Revenue Service (IRS) recently issued additional guidance (Notice 2021-46) on the COBRA premium subsidy provisions in the American Rescue Plan Act of 2021 (ARPA). This additional guidance follows the IRS’s initial guidance on the premium subsidy provisions, which we discussed in a previous alert (here). The Notice is short, containing 11 FAQs that clarify issues related to eligibility for the premium subsidy and the entity permitted to claim the accompanying premium subsidy credit. This alert addresses some of the significant points in the Notice.

Eligibility for Premium Subsidy During Extended Coverage Periods

Ordinarily, a terminated employee is entitled to COBRA continuation coverage for 18 months, but this period may be extended due to a disability determination or a second qualifying event. Similarly, state-law continuation coverage comparable to federal COBRA may provide for an extended coverage period. The Notice clarifies that the COBRA premium subsidy is available to an individual who is entitled to elect COBRA continuation coverage for the portion of such an extended period that falls between April 1, 2021, and Sept. 30, 2021, if the individual is still eligible to elect the extended COBRA coverage under the extension of certain time periods to provide notice and elect benefits under the Department of Labor/IRS “Outbreak Period” guidance (which we discussed here), which is still in effect. The individual can elect the subsidized coverage effective as of April 1, 2021, even if the individual had not notified the plan or insurer of the intent to elect extended COBRA continuation coverage before April 1, 2021.

End of Premium Subsidy Even if Not All Lines of Coverage Are Available Under New Group Health Plan

Eligibility for the COBRA premium subsidy ends when an Assistance Eligible Individual becomes eligible for coverage under any other disqualifying group health plan or Medicare. The Notice clarifies that this applies even if the other coverage does not include all of the benefits provided by the previously elected COBRA continuation coverage. For example, an Assistance Eligible Individual who elected continuation coverage solely for dental and vision coverage and was receiving the subsidy would no longer be eligible for the subsidy when the individual becomes eligible to enroll in another group health plan, even if that group health plan does not provide dental or vision coverage.

State Continuation Coverage

The Notice clarifies that a state program providing continuation coverage only for a subset of residents of the state, such as one that only covers employees of a state or local government, will be considered comparable coverage to federal COBRA for purposes of ARPA’s premium assistance if the state continuation coverage program provides coverage otherwise comparable to federal COBRA.

Clarifications as to the Entity That May Claim the COBRA Premium Subsidy Credit

As we discussed in previous alerts (here and here), the premium subsidy credit may be claimed by the entity to which the COBRA premiums are payable. ARPA provides that, generally, this would be the employer with respect to plans subject to federal COBRA or that are self-insured; the plan with respect to multiemployer plans; and the insurer with respect to small, fully insured plans not subject to federal COBRA or other plans subject to state continuation coverage. The Notice provides certain clarifications with respect to the entity eligible to take the premium subsidy credit, including:

• If a group health plan is subject to both state continuation coverage comparable to federal COBRA and federal COBRA (i.e., where the state-mandated continuation coverage period extends beyond the applicable federal COBRA period), the common law employer (and not the insurer) is eligible to claim the premium subsidy credit, even for the state-mandated period that exceeds the federal COBRA period. This could result in a situation where the employer is eligible for the credit even though the employer has not incurred any losses due to the subsidy (since pursuant to state law, the individual — absent the subsidy — would remit payments directly to the insurer, and the employer does not pay premiums to the insurer).
  
  
• If a plan (other than a multiemployer plan) subject to federal COBRA (a) covers employees of two or more members of a controlled group or (b) covers employees of two or more unrelated employers, each common law employer is entitled to claim the COBRA premium subsidy credit for its employees, with the following exceptions:
  
  
  • The credit may be claimed by a professional employer organization or an agent described in Section 3504 of the Internal Revenue Code (applicable to an agent that acts for an employer) that — absent the subsidy — would receive the premiums.
    
    
  • If the seller in a business reorganization (a stock sale or asset sale) continues to maintain a group health plan and therefore is responsible for providing COBRA continuation coverage (under the applicable Treasury Regulations), the seller would be entitled to the credit, even if the buyer is the common law employer.
    
    
• The Notice provides specific requirements as to when the employer is entitled to the premium subsidy where a plan is offered by the employer through the Small Business Health Options Program.

Next Steps

Employers and plan sponsors should carefully review the Notice and consult with their counsel and COBRA administrators to determine if they are eligible to claim the premium subsidy credit, and to ensure their COBRA administration is otherwise aligned with the applicable guidance.

If you have any questions, please contact a member of the Kramer Levin Employee Benefits and Executive Compensation department.