COBRA Premium Subsidies - A Little More Guidance (and a Reminder)
The IRS issued a new notice that provides guidance on a few issues that were not fully addressed in its earlier notice on the Consolidated Omnibus Budget Reconciliation Act (COBRA) premium subsidy requirements set forth in the American Rescue Plan Act (ARPA).
ARPA generally requires the cost of coverage under COBRA between April 1, 2021, and September 30, 2021, to be fully subsidized for those who qualify for COBRA coverage on account of a reduction in hours or an involuntary termination of employment. ARPA also requires employers to offer the premium subsidy and a new chance to elect COBRA coverage to individuals who would be eligible for the subsidy if their COBRA coverage had not terminated early or if they had elected COBRA coverage in the first place. Plan sponsors are able to recover the amount of the subsidy through payroll tax credits.
The new notice provides guidance on specific details, including the following:
- The COBRA subsidy applies to individuals who are allowed to extend COBRA coverage because of a disability or second qualifying event (or mini-COBRA coverage because of an extension under applicable state rules), even if those individuals did not notify the plan of their right to the extension before the usual 18-month maximum COBRA period expired. Once an employer learns of the extension, it must offer subsidized coverage (where applicable, retroactively to April 1). In providing notice of the subsidy and the right to a second COBRA election, many employers looked back only 18 months to see who had qualified for COBRA because of a reduction in hours or involuntary termination of employment. The new guidance does not address whether employers now have an obligation to reach out to individuals who potentially qualified for the subsidy because they may have incurred a disability or second event that would have extended their COBRA rights. Any requirement to provide such a notice will likely come from the Department of Labor, which has regulatory authority over COBRA notice obligations, but it is not clear that any guidance will be published on this issue.
- The COBRA subsidy ends when the individual becomes eligible for coverage under Medicare or a group health plan (with some exceptions, such as a health FSA). Eligibility for such coverage disqualifies an individual from the subsidy even if the plan does not provide the type of coverage that has been elected under COBRA. In particular, the subsidy for an individual who has COBRA coverage only for dental or vision coverage will end if the individual becomes eligible for Medicare or a group medical plan that does not cover dental or vision expenses.
- Apart from multiemployer plans, the entity that can claim the payroll tax credit for COBRA coverage subsidies (where COBRA is provided under federal law and not a state mini-COBRA law) is typically the applicable common law employer. The exceptions to this rule are narrowly limited to situations where, for example, a professional employer organization pays (or paid) the wages of the employee who had a reduction in hours or involuntary termination of employment or where a single state agency provides health coverage to (and collects COBRA premiums directly from) the employees and former employees of various state agencies.
Health plan administrators should also keep in mind that they must meet a final COBRA subsidy notice obligation. Between August 16, 2021, and September 30, 2021, they must send individuals who are eligible for the COBRA subsidy written notice that the subsidy will expire on September 30. Plan administrators should start preparing for the production and delivery of this notice.
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