How Does The Cobra Subsidy Work? (Solved)

An employee is out on a medical leave for six months. At the end of the sixth month, medical benefits end under the terms of the plan, but the individual is still employed. Any reduction in hours that leads to a loss of coverage is a COBRA qualifying event that would make an individual eligible for the premium subsidy.

  • The way it works is through the federally administered program known as COBRA. If you work at a company with more than 20 employees and lose your job, you can remain on your employer-sponsored health insurance plan for 18 months through COBRA.

How do I get a 2021 COBRA subsidy?

How Does the COBRA Subsidy Work?

  1. An Employee Becomes Eligible for COBRA: Typically as a result of termination or a reduction in hours.
  2. The Employer Notifies All Qualifying Employees About the COBRA Subsidy: This was to be done beginning April 1, 2021, within 60 days of the employee’s qualifying event.

How do you get COBRA subsidy?

To receive COBRA premium assistance, an individual must be an “Assistance Eligible Individual,” which is defined in Notice 2021-31 as any individual who: (1) is a qualified beneficiary as the result of the covered employee’s reduction of hours or involuntary termination of employment; (2) is eligible for COBRA coverage

What is the COBRA subsidy 2021?

The American Rescue Plan Act of 2021 (ARPA) provides for a 100% COBRA premium subsidy for up to six months, from April 1, 2021 through September 30, 2021, for Assistance Eligible Individuals (AEIs) as defined under the guidance.

How does the COBRA premium subsidy work?

The state law is called Cal-COBRA (sometimes also called “supplemental COBRA”). The law is sometimes referred to as ARPA. ARPA provides premium assistance equal to 100% of the amount of the premium for eligible individuals to continue their employer-provided health care coverage after a job loss or reduction in hours.

Will they extend the Cobra subsidy?

The American Rescue Plan provides subsidies to cover the full cost of COBRA premiums for displaced workers through September 30, 2021. This legislation would extend these subsidies through September 30, 2022. Currently, nearly 56 percent of American workers are insured through their employer.

How long does the Cobra subsidy last?

When Federal COBRA ends, eligible employees can buy 18 months additional health coverage under Cal-COBRA. All qualified beneficiaries are generally eligible for continuation coverage for 36 months after the date the qualified beneficiary’s benefits would otherwise have terminated.

How much is the Cobra subsidy?

If the employer considers the 3-month period part of the terminated employee’s COBRA continuation period, the available credit is $200 per month during the 3-month period, and $1,000 per month thereafter.

Did the Cobra subsidy end?

With the COBRA subsidy period set to expire on September 30, 2021, plan administrators are required to notify AEIs of the subsidy’s expiration.

Is COBRA subsidy taxable?

A5. The premium subsidy is not included in income for federal tax purposes.

Will the COBRA subsidy be extended past September 2021?

COBRA Subsidy Under the American Rescue Plan of 2021 ends September 30, 2021. The American Rescue Plan Act of 2021, the most recent stimulus and COVID-19 relief package, requires employers to extend offers of free COBRA coverage to certain qualified employees from April 1 through September 30, 2021.

Will Biden extend COBRA insurance?

Included in Biden’s $1.9 trillion rescue plan are provisions that expand the pool of recipients eligible for receiving COBRA. Specifically, individuals that declined COBRA coverage, or previously elected to receive COBRA coverage but discontinued it, effectively gain another opportunity to receive COBRA coverage.

How much is COBRA insurance monthly?

On Average, The Monthly COBRA Premium Cost Is $400 – 700 Per Person. Continuing on an employer’s major medical health plan with COBRA is expensive. You are now responsible for the entire insurance premium, whereas your previous employer subsidized a portion of that as a work benefit.

Are COBRA payments tax deductible 2021?

Premiums for company health insurance are not tax deductible. COBRA insurance is a health plan that allows you to continue employer-sponsored insurance coverage even if you no longer work for that company. Premiums for COBRA insurance are tax deductible, as they are paid entirely by you on an after-tax basis.

Is the government paying for COBRA?

The government will cover 100% of your COBRA premiums. You could still be on the hook for any copays and deductibles.

Can my new employer pay my COBRA premiums?

Yes, an employer can pay all or part of a former or current employee’s COBRA premiums. Employers may do so as a means to assist an employee during a merger, acquisition, layoff, termination, temporary or permanent disability, retirement, or as part of a recruitment strategy.

DOL Issues COBRA Subsidy Guidance and Model Notices

Earlier this month, the United States Department of Labor (DOL) published advice and example notifications to assist companies in complying with the federal COBRA premium subsidies established by the American Recovery and Reinvestment Act (ARPA). According to Ali Khawar, Acting Assistant Secretary for Employee Benefits Security at the Department of Labor, “the American Rescue Plan provides much-needed assistance to U.S. employees as they confront vital decisions concerning their health care.” “The advice and notices.

It’s always beneficial to have the Department of Labor walk through new legislation, says William Sweetnam, legislative and technical director at the Employers Council on Flexible Compensation (ECFC), which represents sponsors of account-based benefit plans.

He also expects instructions from the Internal Revenue Service and the Treasury Department on the COBRA premium subsidies to be released soon.

Under the ARPA, the federal government will reimburse 100 percent of COBRA insurance payments for qualified workers who have lost their employment and their covered family through September 2021, allowing them to continue to participate in their employer’s health plan while working elsewhere.

  1. Employers will get the subsidy in the form of a payroll tax credit against their quarterly payroll taxes, but they will be responsible for paying the premiums to the health insurance companies themselves.
  2. If the credit exceeds the amount of payroll taxes due from employers, the credit would be refundable when the employers submit Form 941, their quarterly tax return, beginning April 1.
  3. If AEIs accidentally pay premiums during the period of April 1, 2020, to September 30, 2021, they must receive a refund within 60 days of making the payment.
  4. A separate notice for this purpose may be supplied, or an updated COBRA election notice, such as the new model general notice, may be utilized (see link below).

A Notice of Expiration of Premium Assistance must also be provided to AEIs under the ARPA, explaining that the subsidy will expire soon for them—either because their COBRA eligibility has reached its maximum time limit or because the subsidy period is ending as of September 30, the date of the expiration—and that they may be eligible for coverage without any premium assistance after the subsidy period ends.

The following are examples of model notifications that were issued on April 7:

  • Templates for a general notice and a COBRA continuation coverage election notice are available in MS Word and PDF formats.
  • Templates for a general notice and a COBRA continuation coverage election notice are available in MS Word and PDF format.

AEIs who are still inside their 18-month COBRA window in April 2021 should be notified by sending them the attached notification. For plans that end coverage on the last day of each month, this will include those who were involuntarily terminated or lost coverage as a result of a decrease in hours on or after Oct. 1, 2019, according to Barnett. According to her, the letter must be delivered to eligible workers by May 31, “regardless of whether or not the individual is currently enrolled in COBRA, previously refused COBRA, or enrolled and then discontinued COBRA.” This notification is for COBRA coverage that is subject to the regulations of the state’s health plan continuation program.

  • The following documents are available: MS Word and PDF
  • Model Notice of Premium Assistance Expiration:

Send this message to AEIs 15 to 45 days before their COBRA subsidy is set to expire, depending on the situation. As Barnett pointed out, “you do not need to provide this notice if the individual loses the subsidy because they become eligible for other group health plan coverage or Medicare.”

  • MS Word and PDF versions of the Summary of COBRA Premium Assistance Provisions under the American Rescue Plan Act of 2021:

This document contains a form that employees can use to request treatment as a qualified individual for financial help. The Department of Labor’s standard notifications should be used without modification, with the exception of including plan- or employer-specific information as necessary, according to Joy M. Napier-Joyce, an attorney with Jackson Lewis in Baltimore, who prepared the letter. As a result, employers and COBRA administrators now have a good understanding of how to manage this new election right, according to the distribution of the model notifications.

  • FAQs about COBRA Premium Assistance under the American Rescue Plan Act of 2021
  • COBRA Premium Assistance under the American Rescue Plan Act of 2021

The revised guideline emphasizes fundamental standards established by the ARPA while also clarifying a number of concerns, including the ones listed below: 1. Period of time during which the subsidy is provided The advisory notes that premium assistance can run from April 1 through September 30, 2021, and that it will stop sooner if COBRA subscribers do any of the following:

  • • If they become eligible for another group health plan, such as one sponsored by a new employer or a spouse’s employer that does not include excepted benefits
  • • If they become eligible for a qualified small employer health reimbursement arrangement (QSEHRA) or a health flexible spending account (FSA)
  • The employee’s initial continuation coverage period, which is generally 18 months from the end of employment but can be extended to 29 months for people with disabilities and up to 36 months if a second qualifying event occurs during the initial continuation coverage period, such as a divorce or separation between the employee and their spouse, has come to an end.

In February, federal agencies provided instructions allowing anyone affected by the epidemic to elect COBRA coverage or pay for COBRA coverage until the end of the month. A blog post by Graydon’s John Kirk, an attorney, stated that “one of the most crucial concerns answered by the new FAQs helped explain how the subsidy interacts with the earlier guidelines.” Graydon is a law firm that represents farmers and ranchers. According to him, the FAQs “clarified that an individual’s pre-existing ability to chose COBRA continuation coverage, even under the expanded time periods, does not expire during the subsidized election period,” he explained.

Eligibility Workers who lost employer-sponsored group coverage because their working hours were involuntarily reduced (for example, because a business’s hours of operation were changed) or their employment was terminated involuntarily are eligible for the COBRA premium subsidy, according to the COBRA premium subsidy guidance.

Employees who are eligible for COBRA continuation coverage must express their desire to do so in writing.

address critical details such as what constitutes a ‘involuntary termination,’ which is required in order to qualify for subsidized care.” “Unfortunately, the DOL guidance does not address a concern shared by many employers and COBRA administrators: Are individuals who stopped working on their own initiative because of COVID concerns—for example, if their children were unable to attend school and they needed to be at home to care for them—eligible for this subsidy?” says Sweetnam of the ECFC.

This, he pointed out, is permitted by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which permits such persons to collect unemployment benefits “Despite this, the Department of Labor’s recommendation does not allow them to be eligible for the COBRA subsidy.

In order to avoid a tax penalty, employees must attest on election forms that they are not eligible for such coverage and that they will tell the employer if they subsequently become eligible for coverage” through another employer.

As stated in the guidelines, AEIs will “not be required to pay any portion of the amount they would otherwise be required to pay for their COBRA continuation coverage, including any administrative fee that would otherwise be assessed.” COBRA regulations in each state Some states implement their own COBRA coverage requirements, which may be more stringent than the federal COBRA coverage standards and may last for a longer period of time.

California and New York, for example, mandate COBRA coverage for terminated workers who do not meet any other qualifying circumstances for a period of 36 months after their termination.

It is stated in the new guidelines that “premium assistance is also available for continuation coverage under certain state laws,” and that it applies to “state continuation coverage (‘mini-COBRA’) statutes,” among other things.

In accordance with the statute, “assistance eligible persons who opt continuing coverage under state insurance law will only be entitled to receive premium help from April 1, 2021, through September 30, 2021.” If state mini-COBRA laws extend the COBRA duration (for example, to 36 months instead of 18 months for basic COBRA), then the federal subsidy will be available to people who have been getting COBRA coverage for more than 18 months, but the subsidy will still expire on September 30th.

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A portion of the subsidy is also available to small employer plans that must meet state continuation-coverage standards.

Greta Cowart, a partner in the Dallas office of the legal firm Jackson Walker, sent the following letter: The FAQs state that if an eligible individual for the ARPA COBRA subsidy has already paid a COBRA premium for April 2021 (or any other month during the ARPA COBRA subsidy period), the individual should contact the plan administrator or employer to discuss a credit against future premium payments (presumably after the subsidy period, if the individual’s maximum period of coverage extends beyond the subsidy period) or a refund.

She went on to say, “An employer has the option of deciding which technique it will use to deal with incorrect premium payments.” Steps to Take Next Employee benefits, compliance, and regulatory affairs vice president Lisa Nelson of Leavitt Group, a San Diego-based benefits brokerage, wrote that employers must provide the Notice of Availability to AEIs before June 1, but “it is advisable to do so as soon as possible.” ‘Employers may seek guidance from their COBRA administrator to ensure that they are in compliance with the new notification requirements,’ she explained.

Creating a tracking system for each AEI who is eligible to the Notice of Availability within 60 days and the Notice of Expiration 45 days before their subsidy expires is recommended for administering COBRA in-house, she says.

“While the Department of Labor has not yet put this review procedure in place, it is anticipated to be lenient toward the AEI,” she continued.

Associated Human Resources Management Articles: The Internal Revenue Service Provides Answers to COBRA Premium Assistance Credits, SHRM Online, May 2021.

In order to qualify for the new COBRA subsidy, plan sponsors must act quickly, according to SHRM Online in March 2021. Resources Available Only to SHRM Members: Request for SHRM Express Service: The COBRA Premium Subsidy is part of the American Rescue Plan.

7 Perplexing COBRA Subsidy Questions Answered

The new 100 percent premium subsidy under the American Rescue Plan Act (ARPA) applies to individuals who are eligible for COBRA coverage as a result of either a reduction in hours or an involuntary termination of employment, and it is effective for the period beginning April 1, 2021, and ending September 30, 2021, respectively. The United States Department of Labor (DOL) has already developed model notification forms as well as preliminary advice, which includes a summary sheet and commonly asked questions (FAQs).

  • The following are responses to some of the most often requested and most fascinating inquiries we’ve received.
  • According to the rules of the plan, medical benefits are terminated at the conclusion of the sixth month, but the employee continues to be employed.
  • Yes.
  • This covers time off for medical or disability-related reasons, as well as time off for personal reasons.
  • The employee moved on to another organization, however his job with that company was recently terminated due to poor performance on his part.
  • It’s possible to have both.
  • The individual will be given the option of continuing their COBRA coverage.

The ARPA mandates that subsidized COBRA coverage be made available to all persons, even those who have terminated or never elected COBRA coverage.

What happens to those employees that the corporation knows are qualified for Medicare or another employer’s health insurance plan?

Under the ARPA, all AEIs are obliged to be notified of their eligibility for premium assistance before receiving any benefits.

Individuals who are qualified for Medicare or who are covered by another employer’s plan are not eligible for the help.

The mailings must also include information on the $250 penalty that would apply if an individual does not enroll in subsidized COBRA if they are qualified for Medicare or another group health plan.

Question4If a company makes a taxable lump-sum cash payment intended to represent six months of COBRA premiums as part of a severance agreement, is the company eligible to claim a Medicare tax credit for the value of the lump-sum payment?


Employers should be aware that a former employee who gets this sort of cash payout may choose not to enroll in COBRA coverage at all, in which case the employer would not be able to claim a tax credit for the cash lump-sum severance payment.

This would be consistent with instances in which AEIs are not obligated to pay COBRA premiums, rather than situations in which they receive funds that might be used to pay any needed premiums or for any other reason at their discretion.

Under this instance, it appears that the employee would be entitled for a subsidy until the conclusion of any waiting period in the other employer’s plan.

When it comes to any of those scenarios, though, waiting periods or other similar limitations may preclude a former employee from enrolling immediately.

It should be noted that, according to the sample notifications published by the DOL, eligibility for coverage does not include time spent in a waiting period for coverage.


According to the example notice given by the Department of Labor, an employer may be required to submit a notification owing to the “termination of premium support.” Although the FAQ does not compel employers to check about other coverage, the fact that an individual is eligible for Medicare would exclude them from receiving the subsidy.

  1. Question7 An employee of a corporation was just sacked for being dishonest.
  2. If so, what is the definition of gross misconduct?
  3. According to most plans, an employee who has been dismissed because of egregious misbehavior is ineligible for COBRA benefits and would also be ineligible for the COBRA subsidy.
  4. In order for wrongdoing to be termed “gross,” it would most likely need to go above and beyond simple carelessness.
  5. Instead, there must be something outrageous about the employee’s misconduct—something willful or reckless—in order for it to be considered outrageous.
  6. It comes down to this: the employer must determine that the individual’s employment was terminated due to significant, willful wrongdoing in order to deny COBRA and the subsidy to that individual.
  7. Smithey is a co-chair of the employee benefits and executive pay practice group.
  8. In the Chicago branch of the business, Timothy J.
  9. Sizer are both attorneys.

All rights retained by Ogletree, Deakins, Nash, SmoakStewart, P.C. in the year 2021. This article has been republished with permission. SHRM Online has added hyperlinks to this page. Several minor changes have been made to this story from the original, which was published on the firm’s website.

IRS Issues Guidance on the American Rescue Plan Act COBRA Subsidy

As part of the American Rescue Plan Act (ARPA), which was signed into law on March 11, 2021, President Biden established a new, temporary COBRA subsidy. Companies must cover 100 percent of an employee’s cost of continuing group health coverage under COBRA from April 1, 2021 through September 30, 2021 if the employee lost their health insurance coverage as a result of a reduction in hours or an involuntary termination, according to the ARPA COBRA subsidy. On April 7, 2021, the Department of Labor provided answers to commonly asked questions (FAQs) pertaining to the ARPA COBRA subsidies and model notifications, as well as a list of frequently asked questions.

Specifically, Notice 2021-31 (the “Notice”) provides information on how to calculate the credit to multiemployer plans, employers, or insurers, how to determine whether an individual is eligible for the credit, how long the premium assistance period is, and other information that is important to employers, plan administrators, and insurers.

  • Additionally, the Notice notes that the Internal Revenue Service is reviewing whether or not to give additional guidance on the COBRA subsidy in the future.
  • Whether the ARPA subsidy would cover medical, dental, and vision care, or only medical coverage, has been unclear based on the language in the ARPA Act.
  • Terminations that occur voluntarily vs those that occur involuntarily The ARPA subsidy is only available to persons who have lost their health insurance coverage as a result of an involuntary termination or a decrease in working hours.
  • In the Notice, it is stated that this determination is to be made on a case-by-case basis and that it is dependent on the facts and circumstances of a specific termination.
  • Factors that might be important in making this assessment include whether or not the employer would have terminated the employee’s services regardless of the resignation, and whether or not the employee was aware that the employee’s services were about to be discontinued.
  • A required retirement, on the other hand, can be seen as an involuntary termination.
  • According to the Notice, involuntary terminations will be considered when an employee’s departure is caused by a major change in the geographic location of work, or when an employee participates in certain voluntary window programs, among other reasons.

Look at Q as 30-34.

Individuals who have lost their health insurance coverage as a result of a reduction in working hours are also eligible for the ARPA subsidy.

Particularly in light of the reference to a valid labor strike, this section appears to be at odds with the barring of persons from receiving ARPA subsidies who choose to voluntarily end their work.

Self-Certification/Attestation An employer may require people to self-certify or attest that they are qualified for COBRA continuation coverage in the event of a decrease in hours or an involuntary termination of employment, according to the Notice, which can be seen here.

In order to get the ARPA credit, an employer may depend on these self-certifications/attestations; however, the self-certifications/attestations or other evidence that it utilizes to prove eligibility must be retained by the employer.

Individuals who initially elected COBRA because of an involuntary termination or reduction in hours and who remain on continuation coverage for an extended period (i.e., beyond 18 months) as a result of a disability determination, second qualifying event, or an extension mandated by state law will be eligible for the ARPA subsidy, according to the Notice.

Consequently, if an individual elects COBRA with an effective date of August 2019, they will be eligible for the ARPA subsidy even though the COBRA period began more than 18 months before the ARPA subsidy begins in April 2021.

A former employee who chose COBRA and continues on New York continuation coverage between April and September 2021 will be eligible for the ARPA subsidy for the duration of that coverage.

Employers Should Take the Following Steps Employers are required to provide notices to all persons who are eligible for the ARPA COBRA subsidy by May 31, 2021, or until the deadline has passed.

In many circumstances, the COBRA administrator assigned by the company will be in charge of this responsibility. Although the employer is ultimately responsible for COBRA compliance, the employer should make every effort to collaborate with its COBRA administrators in order to fulfill this deadline.

Guide to New IRS Guidance on COBRA Premium Subsidy

The Internal Revenue Service (IRS) issued Notice 2021-31, which provides implementation guidelines on the COBRA premium subsidies provided under the American Rescue Plan Act of 2021, which was published on May 18, 2021. (ARP). As previously noted in our blog postings, the ARP contains a 100 percent COBRA premium subsidy for qualified persons during periods of COBRA continuing coverage from April 1, 2021 through September 30, 2021, as long as they meet the other requirements. The information in Notice 2021-31 is particularly useful for employers and plan sponsors who are responsible for managing the COBRA premium subsidy and collecting the corresponding tax credit.

More information on the guidelines may be found in the sections below, and keep an eye out for future blog entries that will go deeper into the problems discussed below.

Eligibility for COBRA Premium Assistance and Self-Certification

An “Assistance Eligible Individual,” as defined in Notice 2021-31, is any individual who meets the following criteria: (1) is a qualified beneficiary as a result of the covered employee’s reduction in hours or involuntary termination of employment; (2) is eligible for COBRA coverage for some or all of the COBRA premium subsidy period (April 1, 2021 through September 30, 2021); and (3) elects COBRA.

It is confirmed in Notice 2021-31 that an employer or other plan sponsor may require people to self-certify or attest that they fulfill the eligibility criteria for the COBRA premium subsidy and that they are not eligible for any other disqualifying health coverage or Medicare.

The COBRA premium subsidy is available to individuals whose initial 18-month COBRA period was extended due to a disability determination, a second qualifying event, or an extension under State mini-COBRA, according to Notice 2021-31.

More information about this regulation, including what notices (if any) these persons are obliged to receive, would be beneficial for the purposes of putting it into effect.

Reduction in Hours/Involuntary Termination of Employment

It is necessary for the eligible beneficiary to have lost coverage as a consequence of the covered employee’s “reduction in hours” or “unlawful termination of employment” in order to qualify as an Assistance Eligible Individual. In this regard, Notice 2021-31 gives guidelines on the concept of “involuntary” for this purpose, as well as instances of terminations stemming from workplace safety difficulties and difficulty to secure childcare during the epidemic.

As well as addressing difficulties connected to furloughs and work stoppages, the Notice provides instances of eligible terminations in the context of window arrangements and retirement.

Coverage that Qualifies for COBRA Premium Assistance

COBRA premium assistance is available for COBRA coverage that would otherwise be available under a group health plan subject to ERISA, the Internal Revenue Code, or the PHSA (with the exception of health FSAs), as well as coverage required by a state law that requires continuation coverage comparable to federal COBRA coverage (with the exception of health FSA coverage). A number of problems have been raised about the “kind” of COBRA coverage that is eligible for COBRA premium assistance, as addressed in Notice 2021-31.

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In addition, the Notice provides guidance on which forms of state continuation coverage are eligible for COBRA premium assistance under certain circumstances.

Extended COBRA Election Period

One important feature of the COBRA premium assistance available under ARP is the “extended election period”—a special election window for individuals who previously declined or discontinued COBRA coverage, but who would be Assistance Eligible Individuals if they enrolled in COBRA during the COBRA premium subsidy period—which is a special election window for individuals who previously declined or discontinued COBRA coverage, but who would be Assistance Eligible Individuals if they enrolled in COBRA during the COBRA premium subsidy period (April 1, 2021 through September 30, 2021).

For the most part, the Notice is mute on the topic of “who” is eligible for the extended election period—a point on which stakeholders had hoped for greater clarification from the Internal Revenue Service.

One point addressed in the Notice is that individuals who were offered COBRA coverage for both comprehensive medical and dental and vision coverage but who previously elected COBRA coverage only for dental or vision coverage must be offered the extended election period with respect to comprehensive medical coverage if they were previously offered COBRA coverage only for dental or vision coverage.

Implications of Special Emergency Disaster Relief

In response to the COVID-19 pandemic, the Department of Labor, the Department of Health and Human Services, and the Internal Revenue Service extended a special tolling period for certain employee benefit plan deadlines, including the deadline for qualified beneficiaries to elect COBRA coverage and make COBRA premium payments. Specifically, Notice 2021-31 confirmsthat the 60-day deadline for individuals who wish to elect COBRA continuation coverage with premium assistance, as well as the plan administrator’s obligation to provide extended election period notices by May 31, 2021, are not affected by this special tolling relief.

Continue to check this blog for more information on the relationship between the special tolling relief and COBRA premium assistance in a future article.

Calculation of COBRA Premium Assistance Credit

COBRA premium assistance is provided in the form of a tax credit, which allows the individual who would otherwise be responsible for paying COBRA premiums to claim a tax credit in the amount of the premium. In general, the credit for the applicable quarter is equal to the amount of COBRA premiums that are not paid by Assistance Eligible Individuals, plus any applicable administrative fees, that were not paid by the individual. Individuals who are not eligible for COBRA premium assistance may be eligible for a tax credit under the terms of Notice 2021-31.

Claiming the COBRA Premium Assistance Credit

In exchange for paying the COBRA continuation coverage premiums, the premium payee may be eligible for the COBRA premium assistance tax credit. In addition to providing information on “who” qualifies as a premium payee for the purposes of claiming the credit and “when” a premium payee can first claim the credit, Notice 2021-31 also provides information for premium payees who wish to request an advance of the anticipated tax credit in the form of a check. The Notice also includes instructions on how to claim the tax credit for premium payees who do not have any employment tax liability (for example, a multiemployer plan with no employees) as well as premium payees who use a third-party payer to report and pay employment taxes to the Internal Revenue Service (the IRS).

Professional Services firm Proskauer Rose LLP published the National Law Review in Volume XI, Number 147.

COBRA Subsidy: What Employers Need to Know

In response to the COVID-19 epidemic, Congress passed the American Rescue Act of 2021 (ARPA), which is the most recent federal statute to address the economic consequences. However, ARPA does feature an optional extension of sick and family leave (see our explanation of the law) as well as the formation of a COBRA subsidy, which both have an impact on the employer’s HR/Benefits function. The COBRA subsidy is examined in further depth in this article. As an employer who provides a group health plan, you’ll want to understand how the subsidy works and what you’ll be expected to do as part of the process.

Frequently Asked Questions

Employees who have their work hours reduced to part-time status, as well as those who are furloughed or terminated, often lose their group health care. During the COVID-19 epidemic, this interruption in employment-based health coverage has been extremely severe. Although employees have the option to continue coverage via COBRA, the high premium costs make it impossible for the majority of individuals to afford this option.

In order to alleviate the situation, ARPA will provide a government subsidy equivalent to the whole COBRA premium cost for a period of up to six months, beginning in April 2021 and ending in September 2021.

Persons who are qualified for the subsidy are referred to as assistance eligible individuals (AEIs). An AEI must satisfy all of the following requirements:

  • Loss of group health coverage or a reduction in group health coverage as a result of the employee’s:
  • Involuntary termination of employment (save for serious misbehavior) or reduction in working hours are also possibilities.
  • Is qualified for COBRA continuation coverage under the federal legislation or a state’s mini-COBRA law
  • Is ineligible for the following:
  • Is qualified for continuing coverage under the federal COBRA statute or a state’s version of the COBRA program
  • Not qualified for any of the following benefits:
  1. Can you tell me if the subsidy is available for all group health plans and coverages?

It applies to practically all employer-sponsored health insurance, with the exception of a few. They can be divided into two categories:

  • Those group health plans that are subject to the federal COBRA statute, which encompasses both insured and self-funded plans that are sponsored by a private-sector or public-sector company Small employer plans (employers with fewer than 20 employees) and church plans are the only two types of plans that are exempt from federal COBRA. In addition to typical health reimbursement arrangements (HRAs), the subsidy is available for medical, dental, and vision insurance coverage. Health flexible spending accounts (HFSAs) and group health insurance policies that are subject to a state’s continuing coverage statute are also exempt from the requirement (so-calledmini-COBRA). A mini-COBRA statute is now in effect in over 40 states, according to the Congressional Research Service. The vast majority of them only apply to group medical coverage for small businesses that are not protected by the federal COBRA statute
  • Nonetheless,
  1. What is the amount of the subsidy? Who is responsible for the COBRA premium

The subsidy will pay the whole cost of COBRA premiums, including the administrative charge, for covering months beginning in April 2021 and ending in September 2021, respectively. The AEI is not required to pay the COBRA payment and then wait to be reimbursed for the cost. Instead, the employer or insurance provider is responsible for (or must waive) the AEI’s COBRA cost. The federal government will refund the costs incurred by the employer or the carrier involved. It operates in the following way:

  • The employer is responsible for paying or waiving the AEI’s COBRA premiums on a monthly basis if federal COBRA applies. The amount of the subsidy is used as a credit against the employer’s quarterly Medicare payroll tax obligations. If the employer’s subsidy expense exceeds the amount of Medicare taxes owed, the Internal Revenue Service will issue a tax credit to the employer in the form of a refund
  • If federal COBRA does not apply, but the subsidy is required under a state’s mini-COBRA law, the carrier will pay or waive the AEI’s premium and then collect reimbursement through a federal tax credit

For single-employer health plans, the procedure appears to be uncomplicated. A new IRS advice document on multiemployer plans and union trusts, multiple employer welfare arrangements (also known as association health plans), and plans structured through professional employer organizations (PEOs) should assist simplify the procedure for these and other types of plans. The subsidy is not provided on an automated basis. In order to be eligible for the subsidy, the AEI must be offered COBRA and must choose to enroll in the plan.

The individual’s eligibility for the other coverage, even if he or she does not enroll, will preclude them from receiving the subsidy.

  1. In the year 2021, the subsidy will be in effect from April 2021 to September 2021. Is it applicable to COBRA occurrences that occurred before to April 20,21?

There are no COBRA coverage months before April 2021 (and no COBRA coverage months after September), but that does not rule out those who lost coverage before April from being eligible for the subsidy. ARPA requires plans to identify individuals who have lost their coverage as a result of reduced work hours or involuntary separation, if their maximum COBRA term would have ended after April 1, 2021, under the circumstances. An AEI for April 2021 is now available to a laid-off employee whose 18-month COBRA period would have begun on November 1, 2019 (even if the person never elected or was elected and dropped due to non-payment) due to it being the 18th month of the initial period of 18 months.

This means that they will not be compelled to make payments for the months preceding April 2021, which may cause a gap in their coverage.

  1. Is it possible for AEIs to switch medical plans if their employer provides a choice of medical insurance when they chose COBRA with the subsidy?

COBRA normally necessitates the continuation of the same coverage that was in effect when the employee was employed.

As a result of the new subsidy regulations, employers now have the option of enabling AEIs to switch from their current medical plan to a lower-cost plan if they so want. In order to make this option available to their employees, employers must first obtain approval from their medical carrier (s).

If you provide a group health plan, whether insured or self-funded, you’ll want to collaborate with your broker, insurance carriers, vendors, and COBRA administrator to build an action plan as soon as feasible after the plan is terminated. One of the most important responsibilities of companies is to identify all prospective AEIs and inform them about the new COBRA subsidies. The Department of Labor provides the following model notifications for your consideration:

  • The COBRA Continuation Coverage Election Notice and the Model General Notice are available in MS Word and PDF formats. For all future federal COBRA occurrences (including but not limited to those that may be eligible for subsidy assistance)
  • MS Word | PDF Template for a Notice in Connection with an Extended Election Period Prior COBRA qualifying events
  • The so-called “second chance” election opportunity
  • And prior COBRA qualifying events Notes on the Alternative Model: MS Word | PDF People who qualify for a state’s “mini-COBRA” continuance statute MS Word | PDF Template for Notice of Premium Assistance Expiration:MS Word If a subsidy is being received by an individual, the recipient should be notified 15-45 days before the subsidy term expires. Summarized provisions of the COBRA premium assistance program as enacted by the American Rescue Plan Act of 2021: MS Word | PDF

Many of the regular plan deadlines have been extended by the federal agencies throughout the course of the past year. For example, owing to the COVID-19 national emergency, the regular 60-day limit on COBRA elections is automatically extended during the “outbreak period,” which is defined as the time between elections. In the case of the COBRA subsidy, the extended dates do not apply. Consequently, within 44 days of the occurrence of a COBRA event, companies must issue COBRA notices to employees, including information about the subsidy option.

You have until May 31, 2021, to tell them of your decision.

The Department of Labor has released Frequently Asked Questions to assist those who are contemplating applying for the subsidy.

Individuals who have purchased insurance via the Marketplace should pay close attention to the information provided in this section.


The new COBRA subsidy provides substantial financial aid to employees who wish to maintain their health insurance coverage after losing their jobs or having their work hours shortened. Employers should consult with their COBRA administrators, carriers, and advisers as soon as possible to see how the new COBRA subsidy relates to their specific circumstances. The new DOLwebpagededicated to this issue includes essential information for individuals, as well as recommendations and model notifications for use by employers and other organizations.

See also:  Where To Find Spouse Income On Tax Return?

We will continue to watch developments and will make updates on this blog when new information becomes available.

Author:Kathleen A. Berger, CEBS

In order to assist people in meeting the costs of retaining health coverage under the terms of federal and state coverage-continuation legislation, the federal government has established a temporary subsidy. (“COBRA,” which is an abbreviation for the federal mandate introduced by the Consolidated Omnibus Budget Reconciliation Act of 1985, is used in this GRIST to refer to all of these statutes for the sake of simplicity.”) In the case of qualifying beneficiaries who will lose or have already lost employer-provided coverage as a result of forced separation from employment or decreased work hours, the subsidy is equivalent to 100 percent of the cost of COBRA coverage (including the 2 percent administrative charge).

  • It is only accessible from April through September of 2021 when the subsidy is provided.
  • The federal COBRA statute requires a private business with 20 or more workers who sponsors a group health plan to allow individuals who would otherwise lose health coverage for a variety of reasons (such as job loss, divorce, or the death of the employee) to decide to keep their coverage.
  • The whole cost of coverage, plus an extra 2 percent to pay administrative costs, can be charged by employers to employees who choose COBRA coverage.
  • Employers and qualifying beneficiaries are required to comply with COBRA’s notification and other requirements.
  • The federal COBRA coverage is not required for employers with less than 20 employees.
  • Kaiser Health News reported that all but six states have enacted a mini-COBRA law, and at least one state that does not have one – Montana – is contemplating doing so.
  • Similar to the COBRA subsidy implemented by the American Recovery and Reinvestment Act of 2009, the new COBRA subsidy will be funded by the federal government (ARRA).

However, until the ARPA COBRA subsidy is implemented, ARRA guidelines (for example, IRS Notice 2009-27) may give some insight into how the program could operate.

Subsidies are available for the continuation of health, dental, and vision coverage under group health plans (such as health reimbursement agreements), but they are not available for the continuation of coverage under health flexible spending arrangements (FSAs).

The Internal Revenue Code, the Employee Retirement Income Security Act, or both, apply to most workplace health plans, making them liable to federal COBRA.

Due to a small provision in the legislation, church plans (both fully insured and self-funded) are not subject to federal COBRA; however, fully insured church plans may be subject to state continuation regulations, depending on the state.

In order to qualify for the subsidy, people must have lost their employer-sponsored health insurance coverage as a result of an involuntary job loss or decreased work hours between April 1 and September 30 of the current year.

1, 2019).

Some of these so-called assistance-eligible people (AEIs) will need to be given a second chance to elect COBRA coverage (see “Second election period” below for more information).

Involuntary job loss or reduction in hours

It is possible to receive a subsidy if you choose COBRA coverage following an involuntary job loss or reduction in working hours. The phrase “involuntary” is not defined in the legislation, although it clearly excludes persons who have been fired for extreme misbehavior. The old COBRA subsidy program’s guidance highlighted that the facts and circumstances of each termination decide whether or not it is involuntary, and it presented a series of examples to illustrate this point. It remains to be seen if the authorities would amend their prior guidelines to include specifics pertaining to the COVID-19 pandemic outbreak.

For a person to be eligible for the COBRA subsidy, the legislation does not appear to require that a decrease in work hours that results in a loss of coverage be involuntary in order to qualify for the subsidy.

Not eligible for other group coverage or Medicare

COBRA coverage can be terminated early if an individual is covered by — rather than just eligible for — another group health plan or Medicare under the terms of the existing laws. The simple fact of being eligible for another group health plan or Medicare, on the other hand, disqualifies you from receiving the subsidy. After the subsidy period begins, the individual is disqualified for COBRA coverage for the months that begin on or after the date that the individual first becomes eligible for the other plan, whichever is later.

  1. A person’s eligibility for the COBRA subsidy is terminated when he or she becomes eligible for coverage under another group health plan, such as one offered by a new job or by the employer of a spouse, parent, or domestic partner.
  2. However, it is unclear how exactly this restriction relates to subsidy eligibility for excluded benefits, and whether or not it applies at all.
  3. Laura works as an AEI and is enrolled in subsidized COBRA major medical coverage via her employer.
  4. Laura will lose her eligibility for subsidies as of May 1, regardless of whether or not her spouse enrolls Laura in the plan.
  5. Example.
  6. Liam’s spouse begins a new job and has the opportunity to enroll herself and Liam in the employer’s group dental plan, which will begin providing coverage on May 1.
  7. It is necessary to have guidance on this sort of situation.
  8. When a person who has COBRA coverage becomes eligible for Medicare, he or she loses eligibility for the subsidy as well.
  9. There is a notice requirement.
  10. The Department of Labor will choose the time and format of this notification.

It is possible to obtain a penalty that is equal to 110 percent of the subsidy received after eligibility has expired if the failing was “fraudulent.” Even though it is not specifically defined in the legislation, fraudulent most likely refers to a purposeful failure to deliver the requisite notification; confirmation from the relevant agencies would be beneficial.

The COBRA premium subsidy is only provided from April through September, and it will be terminated sooner if an AEI becomes eligible for alternative group health coverage or Medicare at a later date (as discussed above).

When someone receives a COBRA subsidy, it has no effect on whether or how long they are eligible to retain coverage under the program:

  • Similarly, if an individual’s COBRA coverage period expires before September 30, the subsidy will also expire. It is not possible to be eligible for extended coverage or the subsidy if an individual’s COBRA coverage period ends before April 1. Individuals whose COBRA coverage term runs through September will be required to pay the COBRA payment in order to preserve their coverage.

Here are a few illustrations:

  • On November 1, 2020, Alice was laid off and her group health plan coverage was terminated. Alice decided to keep her COBRA coverage and has been paying the needed monthly payment since that decision. Alice will be able to keep her coverage for an additional 18 months, but she will only be eligible for the COBRA subsidy from April through September 2021. Alice will be responsible for paying COBRA rates after September if she want to maintain her health insurance coverage
  • Adam was laid off and will lose his group health insurance coverage on January 1, 2020. Adam chose COBRA coverage and has been paying his monthly fees since he made the decision. Adam will not be required to pay COBRA rates for his last three months of COBRA coverage — April, May, and June 2021 — since he was laid off and lost his company health plan coverage before October 1, 2019. Aaron was laid off and lost his group health plan coverage before October 1, 2019. Aaron made the decision to maintain COBRA coverage for an additional 18 months, until March 2021, but he was responsible for paying the payments (barring application of the outbreak period relief). Aaron is ineligible for COBRA subsidies since his coverage term expired before April 1, 2021
  • Nonetheless, he is eligible for Medicaid.

COBRA coverage is normally the same coverage that an individual had immediately prior to the qualifying event, unless otherwise specified. Employees who experience a qualifying incident may be able to switch to another plan that costs the same as or less than the coverage that was in place at that time under ARPA, but employers are not obligated to give this option. However, as an alternative to major medical coverage, AEIs are not permitted to choose a plan that solely covers exempted benefits, such as a stand-alone dental or vision plan, an employee assistance program (EAP), a health flexible spending account (FSA), an on-site health clinic, or a QSEHRA.

  1. Given that AEIs are not required to pay premiums during the subsidy period, moving to lower-cost coverage will not result in any savings, assuming COBRA coverage remains after the subsidy period expires, which is unlikely.
  2. In spite of this, employers can choose to provide the opportunity to switch, and AEIs have 90 days from the time they receive notification of the choice to switch until they must switch.
  3. Subsidies are provided for any and all group health plan coverage that is subject to COBRA (with the exception of health FSAs), including excluded benefits such as dentistry, vision, and some employee assistance programs.
  4. Can an AEI, for example, pick a less costly dental or vision plan for the duration of the subsidy period?
  5. A special 60-day COBRA election period will be provided to those who would have been eligible for a subsidy but chose not to enroll in COBRA, or who opted COBRA but later discontinued or had it terminated because they did not pay their premiums on a timely basis.
  6. There is a notice and election time that is required.
  7. The second election period extends from April 1 to 60 days after the individual receives a fresh COBRA notification that has been “given” to him or her.
  8. Any delay in issuing the notification will result in the second election period being extended.
  9. COBRA coverage is available for a limited time.
  10. Instead, coverage selected during the second election period will commence when the subsidy period begins on April 1, which is when the second election period ends.

The rebate does not lengthen the time period for which COBRA coverage is required. Here are a few illustrations:

  • AEI Jim became eligible for COBRA coverage on May 1, 2020, but he did not take advantage of the opportunity. During the second election period, Jim can opt COBRA coverage, which will take effect on April 1, 2021, and will require him to pay no premiums until the end of September. The COBRA coverage that Jim has can be extended until October 2021 (the conclusion of the 18-month coverage term) provided he pays the monthly cost
  • Judy, an AEI, becomes eligible for COBRA coverage on December 1, 2019. The COBRA coverage she chose was terminated after she did to pay the payments for the months of January and February 2020. The coverage will begin on April 1, 2021, and Judy will not be charged a premium for the months of April and May. Judy’s COBRA coverage will expire at the end of May, and Jon will become eligible for COBRA coverage on September 1, 2019. Jon is ineligible for the second COBRA election period since the 18-month coverage term relevant to Jon’s COBRA right expires before April 1, 2021
  • Nonetheless, Jon is eligible for the first COBRA election period.

Individuals who are eligible for subsidies will need to be identified by covered plans, and they will need to be provided with a notification clarifying their new entitlements. Covered plans will now be required to send prior notification to COBRA beneficiaries advising them of the subsidy’s expiration date. This notice must be received between 15 and 45 days before the subsidy is set to expire. The Department of Labor is in charge of generating model notifications that companies can utilize.

Subsidy availability and second election notice

The information concerning the subsidy must be provided to anybody who becomes eligible for COBRA for any reason during the subsidy period (April 1 through September 30), and this information must be provided as part of the usual COBRA election notification procedure. According to the legislation, this notice is required even for those who are ineligible for the subsidy because of an incident other than an involuntary job loss or decrease in hours that triggered their COBRA right. In addition, AEIs who have previously opted COBRA and who have a coverage term that extends beyond April 1 must be provided with information regarding the subsidies.

The following figure illustrates the distribution of notices to different categories of COBRA-eligible persons at various times throughout the year.

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