The ARPA COBRA subsidy requires employers to cover 100% of an employee’s cost of continuing group health coverage under COBRA from April 1, 2021 through September 30, 2021 for those who lost their health care coverage on account of a reduction of hours or an involuntary termination.
- The ARPA COBRA premium subsidy covers the full cost (100%) of your group health plan. Since plans and coverages vary per person and employer, the cost is not the same for everyone. Generally, during a non-subsidy period, COBRA continuation coverage is paid by the eligible individual.
Who qualifies for the ARPA COBRA subsidy?
The COBRA subsidy is available to any individual who (1) had a COBRA qualifying event because of a covered employee’s reduction in hours or involuntary termination of employment and (2) is eligible for COBRA during the Subsidy Period.
What is the COBRA subsidy?
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.
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 much is the ARPA COBRA subsidy?
The individual can enroll in the $700 or $750 per month options with premium assistance. The AEI will not be eligible for premium assistance if he or she enrolls in the $1,000 per month option.
How does employer get reimbursed for ARPA?
The ARPA tax credit is fully refundable, which means that employers can receive a payment from the IRS if their credit exceeds their Medicare obligations in a calendar quarter.
Will COBRA subsidy be extended beyond September 2021?
Will The COBRA Subsidy be Extended? The COBRA subsidy has been extended until September 30, 2021. Currently this is the final date for subsidy assistance.
Will ARPA COBRA subsidy be extended?
The COBRA subsidy is available to AEIs who are entitled to elect an extension beyond their original 18-month COBRA continuation coverage period (due to a disability determination, second qualifying event, or an extension under state mini-COBRA), but only to the extent that the extended period of coverage falls between
Is COBRA subsidy taxable?
A5. The premium subsidy is not included in income for federal tax purposes.
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 do I get reimbursed for COBRA payments?
The premium will be reimbursed directly to the employer, plan administrator, or insurance company through a COBRA premium assistance credit. 1. Plans and issuers were required to notify eligible employees who had a qualifying event before April 1, 2021 about their right to COBRA premium assistance by May 31.
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.
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.
Can COBRA premiums be refunded?
Request a Refund for Amounts Paid in COBRA Premiums Exceeding Federal Employment Tax Liability: The employer may claim the Credit through an employment tax refund on the applicable employment tax return, generally Form 941, Employer’s Quarterly Federal Tax Return.
Who pays the COBRA subsidy?
Employers subject to federal COBRA continuation coverage are responsible for covering the subsidy and filing for the subsequent tax credit. Typically this includes employers with 20 or more employees. If the company is a part of a controlled group, the entire controlled group is assessed in employee count.
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.
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.
- 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.
- Question7 An employee of a corporation was just sacked for being dishonest.
- If so, what is the definition of gross misconduct?
- 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.
- In order for wrongdoing to be termed “gross,” it would most likely need to go above and beyond simple carelessness.
- Instead, there must be something outrageous about the employee’s misconduct—something willful or reckless—in order for it to be considered outrageous.
- 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.
- Smithey is a co-chair of the employee benefits and executive pay practice group.
- In the Chicago branch of the business, Timothy J.
- 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 Guidance on ARPA COBRA Subsidies: 86 Q&As and Counting
In March of 2021, President Biden signed the American Rescue Plan Act (“ARPA”) into law, which, among other things, mandates that employers provide 100 percent COBRA premium subsidies to eligible employees (“Assistance Eligible Individuals” or “AEIs”) and their qualified beneficiaries from April 1, 2021, through September 30, 2021 (“Subsidy Period.” In this case, the employee has undergone a “qualifying event,” which can be either a “involuntary termination” or a “reduction in hours,” and is or might have been qualified for COBRA coverage during the Subsidy Period.
- In most cases, the qualifying event must occur within the Subsidy Period; however, former workers who experienced qualifying events prior to the Subsidy Period may be eligible for an extended COBRA election period under the ARPA.
- We have previously recommended that employers use the Model Notices and advice published by the United States Department of Labor to make it easier to comply with these obligations.
- The guidance includes helpful examples on how employers, third-party administrators, and insurers can comply with the COBRA subsidy requirements.
- Due to the fact that the guideline is rather extensive, the following is a summary of the most significant provisions.
Who Is Eligible for COBRA Premium Assistance?
Anyone who (1) experienced a COBRA qualifying event as a result of a covered employee’s reduction in hours or involuntary termination of employment and (2) is eligible for COBRA coverage during the Subsidy Period is eligible to receive a COBRA subsidy under the Affordable Care Act. These AEIs had previously enrolled in COBRA prior to April 1, 2021; had previously enrolled in COBRA but stopped coverage; or had not opted COBRA as of April 1, 2021, and whose maximum duration of COBRA coverage had not yet ended are included in this category.
Importantly, the Internal Revenue Service has stated that employers may require employees to self-certify that they are eligible for the COBRA subsidy as a result of a reduction in hours or involuntary termination, as well as whether they are eligible for other group health plan coverage or Medicare coverage.
It has been stated by the IRS that employers who claim the tax credit for COBRA subsidies should keep copies of the self-certifications or attestations in their records, even though this is not required by law.
- Employers could consider asking AEIs to self-certify and/or attest that they (1) are eligible for the COBRA subsidy owing to a decrease in hours or an involuntary termination and (2) are not eligible for any other group health plan coverage or Medicare during the Subsidy Period. Takeaway: Takeaway: Employers should save copies of these self-certifications and attestations for their records, particularly if they want to claim the tax credit.
The phrase “decrease in hours” continues to be unclear and subject to different interpretations. The COBRA subsidy is available to individuals whose qualifying event is a “voluntary reduction in hours,” for example, an individual who voluntarily shifts from full-time to part-time work under the Q As would be entitled to receive the subsidy under the Q As. The Q and A do not provide any clarification on what constitutes a “voluntary reduction in hours” or on the degree to which the voluntary reduction clause may apply to persons who refuse to return to full-time employment.
Additionally, the Internal Revenue Service addressed the concept of “reduction in hours” as it pertains to organized labor, especially noting that a reduction in hours includes labor-related work stoppages as a consequence of authorized strikes or employer lockouts.
- Employers should be aware of how changes to their staff may have constituted a decrease in hours, thus triggering eligibility for COBRA, eligibility for the COBRA subsidy, and the notice requirements under ARPA for AEIs. Important Takeaway: The use of unique working arrangements during the COVID-19 epidemic, which may come under the term of “furlough,” should be kept in mind by employers.
What Is an Involuntary Termination of Employment?
As defined by the Internal Revenue Service, a “involuntary termination” is defined as “a separation from employment caused by the independent exercise of the employer’s unilateral authority to terminate the employment, other than due to the employee’s implicit or explicit request, in circumstances where the employee was willing and able to continue performing services.” It has been explicitly stated by the Internal Revenue Service that a “constructive discharge” would constitute a “involuntary termination.” Aside from that, the IRS indicated that if an employee is involuntarily dismissed due to egregious misbehavior, the individual would be ineligible for COBRA continuation coverage and would thus not qualify as an Assistance Eligible Individual.
The Internal Revenue Service routinely excluded retirement from the definition of “involuntary termination.” To their credit, the IRS stated that an employer’s decision not to renew an employee’s contract is considered an involuntary termination, unless the parties understood at the time they entered into their existing agreement that their agreement would be terminated for a specific reason and would not be renewed, in which case the employee would not be eligible for the COBRA subsidy.
Employers who recruit seasonal or temporary employees may have difficulties in this situation, particularly if there is an expectation that the seasonal employees would return the following season or that the temporary employees will be hired to complete specified jobs.
The IRS has indicated that whether a termination is involuntary or not relies on the specific facts and circumstances of each case. As a result, the Q As may be interpreted differently according on the applicable employment agreements and conditions surrounding an employee’s departure.
- Employers should be cautious when entering into employment contracts that have fixed periods, such as employment contracts for seasonal and temporary personnel.
What Type of Coverage Is Eligible for COBRA Premium Assistance?
When a group health plan, including dental-only and vision-only plans, provides COBRA continuation coverage for active employees, the COBRA subsidy is available. The COBRA subsidy is also available for retiree health coverage, provided that the retiree coverage is offered under the same group health plan as the coverage provided to active employees. If you are purchasing COBRA continuation coverage through a health reimbursement agreement (“HRA”), you may be eligible for a COBRA subsidy as well.
- Important Takeaway: In general, the COBRA subsidy is available for the majority of COBRA continuation coverage offered by any group health plan. In order to guarantee that employees who are AEIs receive the subsidy, employers should keep an eye out for employees who are registered in dental-only and vision-only insurance plans.
When Does the COBRA Premium Assistance Period Begin and End?
In order to be eligible for the COBRA subsidy, an AEI must have coverage for the first applicable period of time beginning on or after April 1, 2021, and ending on the earlier of (1) the end of the AEI’s COBRA continuation coverage period, (2) September 30, 2021, or (3) the date on which the individual becomes eligible to enroll in coverage under another group health plan (including a spouse’s group health plan) or Medicare.
Employers (or their COBRA administrators) must send notices to AEIs whose subsidy is ending (1) prior to September 30, 2021, because the normal COBRA continuation maximum period is coming to an end, or (2) as of September 30, 2021, if the subsidy is ending before the normal COBRA continuation maximum period (the end of the Subsidy Period).
Payment should be made in a timely manner in accordance with the provisions of the plan and subject to COBRA continuation requirements and Emergency Relief Notices.
- Takeaway:Employers must ensure that AEIs are notified that their subsidy is expiring by delivering theNotice of Expiration of Term of Premium Assistanceat least 15 days, but no more than 45 days, before the end of the appropriate subsidy period.
How Are Extensions Under the Emergency Relief Notices and the Extended Election Periods Coordinated?
If a qualifying beneficiary, including a spouse or dependent, does not have a COBRA continuing coverage election in place on April 1, 2021, but would have been an AEI if the election were in force, employers are obligated to give them with an extended election period. Aside from that, if an employee experiences a reduction in hours or an involuntary termination before April 1, 2021, and elects self-only COBRA continuation coverage, their spouse or dependent child who is a qualified beneficiary as a result of the reduction in hours or involuntary termination qualifies as an AEI and has the opportunity to elect coverage during the extended period.
The extension offered under the Emergency Relief Notices, on the other hand, does not apply to the time requirements under ARPA for issuing the notice or the prolonged election period.
- A key takeaway is that employers must carefully review employment data to ensure that theModel COBRA Continuation Coverage Notice in Connection with Extended Election Periodsand theSummary of COBRA Premium Assistance under ARP and Request for AEI Treatment Formare sent to AEIs eligible under the extended election period who may or may not have elected COBRA after an involuntary termination or reduction in hours.
What Should Employers Know About Payments to Insurers Under Federal COBRA and Comparable State Continuation Coverage?
A fully insured group health plan (that is not a multiemployer plan) that is subject to federal COBRA will be obligated to treat an AEI as if the premium had been paid in full if the insurer has agreed to collect COBRA payments directly from qualifying beneficiaries. The employer will be responsible for paying the premium to the insurer during the months in which the AEI is eligible for the COBRA subsidy, as determined by the insurer. An employer who offers a fully insured plan that is subject solely to state mini-COBRA continuation requirements and is not subject to federal COBRA is ineligible for the premium tax credit since the plan is not subject to federal COBRA.
- Takeaway:Employers should check with their insurers that the insurers would treat the AEIs as if they had paid the COBRA rates in full in order to ensure continuous compliance with the law. Insurance carriers may be liable for excise taxes of $100 per day per qualifying beneficiary (but not more than $200 per family) for each day of noncompliance if they fail to regard an AEI as having made a complete payment.
How Is the COBRA Premium Assistance Credit Calculated and Claimed?
For similarly situated employees and qualified beneficiaries, if an employer does not subsidize COBRA premium costs for those employees and qualified beneficiaries, the premium tax credit that an employer can claim for each calendar quarter is the amount equal to any premiums not paid by the AEI as a result of ARPA, which can be as much as 102 percent of the cost during the Subsidy Period. But if an employer pays any portion of the COBRA premium expenses for similarly situated workers and qualifying beneficiaries who are not AEIs, then any amount that would have been charged to AEIs if the subsidy had not been provided counts toward the tax credit for the quarter (if applicable).
According to the guidelines, the following individuals are considered “premium payees” and are therefore able to claim the premium tax credit:
- In the event of a group health plan that is a multiemployer plan, the multiemployer plan is the following: In the case of a group health plan subject to federal COBRA or under which some or all of the coverage is self-funded, the employer
- Or, in the case of a group health plan not described above (e.g., a fully insured plan subject to mini-COBRA continuation requirements), the insurer providing coverage.
In the event of a group health plan that is a multiemployer plan, the multiemployer plan is defined as follows: In the case of a group health plan subject to federal COBRA or under which some or all of the coverage is self-funded, the employer; or, in the case of a group health plan not described above (for example, a fully insured plan subject to mini-COBRA continuation requirements), the insurer providing coverage.
- One important takeaway is that employers should carefully analyze their severance arrangements and separation agreements to see whether they are eligible for the premium tax credit. The Q and As contain unique intricacies involving severance arrangements, separation agreements, and the ability to claim the premium tax credit. Read on for more information. Employers should consult with legal advice to discover the choices that may be open to them when deciding whether or not to claim the premium tax credit. Takeaway: Employers should collaborate with their tax advisors to ensure that the right papers are filed in order to claim a subsidy for AEIs, if they are qualified.
What Employers Should Do Now
- Examine recent IRS instructions to verify that all Assistance Eligible Individuals are appropriately identified and that all requirements are met
- Individuals eligible for COBRA benefits whose employment has ended (voluntarily or unwillingly) and who may have undergone any form of decrease in hours or similar occurrence should be identified through a workforce audit. Coordinate with COBRA administrators to ensure that all essential notices are distributed on time. Collaborate with COBRA administrators and attorneys to produce self-certifications and/or attestations for AEIs in order to guarantee that they are eligible for the COBRA subsidy. Conserve any documentation pertaining to COBRA benefits, including self-certifications and/or attestations acquired from AEIs
- Consult with tax advisers and consultants to ensure that the necessary documents are filed and that tax credits are appropriately claimed.
Revisit the latest IRS advice to verify that all Assistance Eligible Individuals are correctly identified and that all requirements are met. Individuals eligible for COBRA benefits whose employment has ended (voluntarily or unwillingly) and who may have undergone any form of decrease in hours or similar occurrence should be identified by conducting an audit of your workforce; Work with COBRA administrators to ensure that all mandatory notices are distributed on time. Collaborate with COBRA administrators and attorneys to produce self-certifications and/or attestations for AEIs in order to guarantee that they are eligible for the COBRA subsidy; Keep track of COBRA reimbursements, as well as self-certifications and/or attestations acquired from AEIs; and To ensure that the necessary documents are filed and tax credits are claimed, engage with tax experts or consultants.
Employer Responsibilities Under the ARPA COBRA Subsidy
The American Rescue Plan Act of 2021 (ARPA) has a variety of measures that require companies to take quick action in certain situations. One such provision allows for a 100 percent federal subsidy of COBRA premiums (including the up to 2 percent administrative costs) during the period of April 1, 2021, through September 30, 2021, if the premiums are paid by the government. However, the incentive does not apply to group health insurance that is normally subject to COBRA, such as health flexible spending accounts.
Identifying Individuals Who Are Eligible for Assistance AEIs (assistance eligible persons), as defined under the ARPA COBRA subsidy, are employees who were involuntarily dismissed or who had their hours reduced, as well as their covered dependents, who are eligible for the subsidy.
In order to be eligible for the six-month subsidy window, an AEI must meet one of two criteria: 1.
(2) The AEI was eligible for COBRA, but (a) they failed to elect COBRA continuation coverage, or (b) they timely elected but dropped the coverage before April 1, 2021 (Group (2) AEIs).Group (2) AEIs are eligible for a COBRA subsidy if they make an election within the new 60-day period required by the ARPA.Group (2) AEIs are eligible for a COBRA subsidy if they make an election within the new 60-day period required by the The Department of Labor is expected to provide model wording for this “Group (2) AEI special election period” sometime in April.
- Furthermore, while the subsidy cannot be used for coverage that began before April 1, 2021, Group (2) AEIs are anticipated to include persons who have been benefiting from “Outbreak Period” assistance under joint agency guidelines released in 2020.
- Before the ARPA was implemented, employers and plans had just begun to deliberate about how to comply with the new notice advice and put it into effect.
- As far as the AEI is concerned, they should not be receiving bills for COBRA premiums that are related to coverage for which they are eligible for a reimbursement.
- When AEIs become eligible for other workplace coverage or Medicare, or when they reach the end of their maximum COBRA coverage period, they are no longer eligible for the subsidy.
- Notice Requirements for a Plan Individuals who become eligible for COBRA for the first time during the six-month subsidy period (whether or not they are an AEI) must be informed about the new subsidies, according to the ARPA.
Specifically, the plan’s COBRA election notice must include the following additional information for any such individual:
- The method should be followed, including any papers that may be required, in order to determine eligibility for the COBRA subsidy
- Provide the name and contact information for the person who will be giving more information regarding the premium subsidy. A description of the special election period for Group (2) AEI, as previously mentioned
- An explanation of the obligation of a qualified beneficiary to inform the plan if they are prohibited from receiving the COBRA subsidy because they are eligible for another group health plan or Medicare coverage
- Description of the punishment for failing to inform the plan of disqualification of the plan of disqualification Explaining the eligible beneficiary’s right to subsidized COBRA coverage and any limitations that may apply to his or her eligibility for the subsidy
If the employer decides to allow it, the election notification should also explain how to enroll in a different, less costly coverage option that may be offered under the plan if the company so chooses. For this six-month subsidy period, the plan may either update its usual COBRA election notice or prepare a new document or “insert” that would be delivered in conjunction with its standard COBRA election package, according to the plan’s preference. We anticipate to receive model notification wording from the DOL sometime in April, but plans are free to create their own version as long as it meets the content standards.
- This notice must be submitted by May 31, 2021, and we anticipate to see sample notice wording from the Department of Labor for this as well, if not before.
- Neither more than 45 days nor less than 14 days before the COBRA subsidy expiration date may be provided.
- The organization that is responsible for paying the COBRA premium payments up front varies depending on the kind of plan in question.
- Small plans free from federal COBRA are the only exceptions, as are multiemployer plans (where the plan is in charge of the coverage) (where the insurer is responsible with respect to state-mandated continuation coverage).
- In order to address some of these concerns, the Internal Revenue Service has been asked to give more clarification on the credit and refund procedure.
- In order to claim this credit, the liable organization must file a quarterly payroll tax return with the IRS.
- The Internal Revenue Service has not yet specified how this refund would be handled, although further information is expected on this subject.
Planning and action items that might be considered While we await further clarification on these ARPA COBRA requirements, businesses and plans can begin planning now, for example, by doing the following:
- Inquire with vendor partners of the employer or plan who presently provide assistance for payroll, eligibility or enrollment, and/or COBRA administration to learn how these partners may assist with ARPA compliance. Begin by determining the subset of the population most likely to be “AEIs.” It may be able to use vendor data reports from payroll or COBRA to accomplish this goal. Individuals who have undergone a qualifying event (QE) as a result of involuntary termination or decrease in hours over the last 18 months would be the majority of those who qualify (which is the maximum COBRA coverage period required by law). It is recommended that qualifying events be included in plans with group health coverage that continues through the final day of the month at the very least as early as October 1, 2019. Start gathering the employment or payroll data that will be needed to evaluate whether a termination was voluntary or involuntary on your behalf. Cases that may be uncertain should be flagged so that they may be revisited if new clarifying agency advice is available (for example, voluntary layoffs, early retirements, and severance agreements)
- Confirm how the plan will ensure that AEIs who obtain subsidized coverage within the six-month interval do not have their coverage terminated, with the exception of situations approved by the ARPA (e.g., upon eligibility for other employer coverage or Medicare, or expiration of maximum COBRA period). The COBRA vendor and/or the insurance provider or third-party administrator for group health coverage may need to work together to accomplish this. Determining whether or not to allow AEIs to move to a different, less costly coverage option than the one in which they were enrolled at the time of their qualifying event if the employer offers various coverage choices under its plan. Examine the COBRA communications from the plan, notably the election notification package and any special communications that may be delivered as part of federal or state relief efforts during the pandemic period. Coordination should begin immediately with COBRA vendors and human resource employees to ensure that communications are up to date and given as required
Inquire with vendor partners of the employer or plan who presently provide assistance for payroll, eligibility or enrollment, and/or COBRA administration to learn how these partners may assist with ARPA compliance; Starting with the demographic most likely to contain “AEIs,” narrow down your search. In this case, payroll or COBRA vendor data reports may be able to be accessed. Individuals who have undergone a qualifying event (QE) as a result of an involuntary termination or decrease in hours in the last 18 months would be the majority of those who qualify for benefits (which is the maximum COBRA coverage period required by law).
Make a start on gathering the employment or payroll data that will be required to evaluate whether a termination was voluntary or involuntary.
Confirm how the plan would ensure that AEIs who obtain subsidized coverage within the six-month interval do not have their coverage terminated, save in the cases when the ARPA permits this (e.g., upon eligibility for other employer coverage or Medicare, or expiration of maximum COBRA period).
Examine the COBRA communications from the plan, including the election notification package and any special communications that may be given as part of federal or state relief efforts during the flu season.
IRS Releases New Guidance Regarding Who Is Eligible for the American Rescue Plan Act’s COBRA Subsidy
The American Rescue Plan Act of 2021 (“ARPA”) was signed into law by President Barack Obama on March 11, 2021. ARPA changes who is responsible for paying for continuing health care under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”). Individuals were expected to pay 100 percent of their own COBRA premiums prior to the passage of ARPA, as well as an administration cost of up to 2 percent. As part of the ARPA’s “COBRA subsidy” rule, which is in effect from April 1, 2020, to September 30, 2021, employers are required to offer COBRA coverage to “Assistance Eligible Individuals” (AEI) at no cost to the individual during that period.
- Has lost coverage under an employer-sponsored health, dental, or vision plan as a result of a reduction in hours or an involuntary termination
- Is within their initial 18-month COBRA coverage period (i.e., the loss of coverage must have occurred after October 1, 2019)
- And is ineligible for other group health coverage or Medicare coverage.
In addition to plans provided by state or local governments, the COBRA discount is available to small governmental employers (those with less than 20 workers) who are free from federal COBRA but subject to California COBRA. Employers are have to pay the subsidy, but they will be able to recoup the expense through federal tax credits. To whom and by what deadlines must employers provide notice to AEIs? Employment-based insurers (AEIs) who first became eligible to elect COBRA before April 1, 2021 and have not reached the maximum period for their COBRA coverage (18 months) and/or failed to elect COBRA coverage when it was first offered must receive notice of the COBRA subsidy (as well as certain other COBRA rights under ARPA) by May 31, 2021.
AEIs then have 60 days from the date of the notification to choose COBRA coverage for themselves and their dependents.
Companies are also obligated to notify employees who have a COBRA-qualifying event between April 1 and September 30, 2021 with a generic ARPA COBRA notice to remind them of their eligibility for COBRA coverage as well as their entitlement to a COBRA subsidy under the law.
Finally, employers must submit notification of the expiration of an AEI’s subsidy to the AEI 15–45 days before the subsidy expires, depending on when the subsidy was granted. The following is a concise summary of the notification requirements:
- By May 31, 2021, employers must provide notice of the premium subsidy and a second opportunity to elect COBRA to AEIs who experienced a qualifying event between October 1, 2019 and April 1, 2021 (including individuals enrolled in COBRA, those who did not elect COBRA, and those who elected COBRA and later dropped)
- Within the typical 44-day time frame: For AEIs who experience a qualifying event between April 1, 2020, and September 30, 2021, the employer must give a COBRA election notification that includes information on whether or not the premium subsidy is available. Within 15–45 days before the subsidy is set to expire, you must: For AEIs whose subsidy is about to expire, whether because the AEI’s maximum COBRA continuation term is coming to an end or because the subsidy is about to expire on September 30, the employer is required to offer early notification of the imminent expiry of the subsidy.
The relevant notices will be prepared and distributed by the third-party COBRA administrator for the vast majority of employers. Employees with AEI status must be identified by their employers, and businesses must complete this identification procedure by May 31, 2021 in order to receive the first notice indicated in the preceding paragraph. It thus becomes necessary to ask the question of what exactly constitutes a “involuntary termination” for the purpose of qualifying an individual for the COBRA payment as an AEI.
The ARPA does not clarify what is meant by a “involuntary termination” of employment.
The Internal Revenue Service (IRS) issued Notice 2021-31 on May 18, 2021, to assist employers in understanding the new tax credit for the COBRA subsidy.
Aside from that, the Notice gives guidance in the following circumstances:
- Termination for a constructive or valid cause. It includes an employee-initiated termination from work, in which the employee terminates owing to an employer action that results in a major unfavorable change in the employment relationship for the employee. Involuntary termination also includes termination from employment without cause. In the case of a major negative change, a material reduction in hours is included. Even when a termination is designated as voluntary, if the facts and circumstances indicate that the employer would have terminated the employee if the voluntary termination had not taken place, and the employee was aware that he or she was about to be terminated, the termination is deemed involuntary. The decision of the employer not to renew the employment contract of an employee. Involuntary termination could include the employer’s failure to renew an employee’s contract when it expires, even if the employee was willing and able to execute a new contract with terms and conditions similar to those in the expiring contract and to continue providing the services
- The employer’s failure to provide the employee with a new contract when the existing contract expires
- The employee’s refusal to provide the employer with a new contract when the existing contract expires
- The employee’s refusal to provide the employer As a rule, a retirement is defined as a voluntary termination that does not result in the employee becoming eligible for the COBRA subsidy. Nonetheless, retirement may be included in an involuntary termination if the employer would have dismissed the employee regardless of whether he or she chose to retire and the employee was aware that he or she would have been terminated Illness or physical incapacity The action taken by an employer to terminate an employee’s employment while the employee is absent from work due to illness or disability is considered an involuntary termination if the employer has a reasonable expectation that the employee will return to work once the illness or disability has subsided. An absence from work due to sickness or disability without the employer’s action to terminate may nonetheless result in a “involuntary termination” if the employee’s hours are reduced in an involuntary manner and if the absence results in the loss of health insurance coverage. An involuntary termination includes a termination chosen by the employee in exchange for a severance package in which the employer indicates that after the offer period for the severance package has expired, a certain number of remaining employees will be terminated
- And a termination chosen by the employee in exchange for a severance package in which the employer indicates that after the offer period for the severance package has expired, a certain number of remaining employees will be terminated. Workplace Safety is a source of concern. Generally, if an employee terminates his or her employment because of widespread concerns about workplace safety, the separation is not seen as an involuntary termination. However, if the employee can establish that the employer’s acts or inactions resulted in a major unfavorable change in the work relationship, the termination would be considered involuntary, comparable to a constructive discharge. The termination of an employee’s employment owing to personal reasons unconnected to the acts or inactions of the employer, such as a health condition of the employee or a family member, shall not be considered an involuntary separation. Unavailability of child care and schooling. A voluntary termination is not considered an involuntary termination if an employee decides to terminate work as a result of COVID-19, because his or her kid is unable to attend school or because daycare is not accessible as a result of COVID-19.
However, while Notice 2021-31 includes examples of what constitutes an involuntary termination, the Notice does not cover all possible scenarios that may arise. When Does an Elected Official Suffer an Involuntary Dismissal from His or Her Position? It is possible that public agencies may be faced with the dilemma of whether a former elected official who loses agency-sponsored health insurance is qualified for the ARPA’s COBRA subsidy. Once again, the answer will be determined by the facts and circumstances of the case.
|Event causing coverage loss||Description||Is the official eligible for the COBRA subsidy as an AEI?|
|Lost reelection:||An elected official who loses a reelection bid in December 2020||Probably yes|
|Term limits||Due to term limits, an elected official cannot run for reelection in December 2020 due to term limits.||Probably yes|
|Resignation||An elected official is eligible to run for reelection in December 2020, but decides not to||Probably no|
Do you have any thoughts on involuntary terminations due to “gross misconduct?” Despite the fact that employees who are involuntarily terminated are eligible for the COBRA subsidy, one exception is that employees who are fired for “severe misbehavior” do not qualify for COBRA continuation coverage (and by extension, are ineligible for the COBRA subsidy). In accordance with the American Rescue Plan Act of 2021, see Notice 2021-31 and the U.S. Department of Labor’sFrequently Asked Questions About COBRA Premium Assistance Under the Act of 2021.) The hard part is that neither COBRA nor the ARPA define “gross misconduct” in any specific way.
- Prior to rejecting a former employee COBRA continuing coverage and subsidy after a termination for egregious misbehavior, it is recommended that employers contact with legal advice.
- When an individual experiences a decrease in hours, whether voluntarily or involuntary, as a result of which they lose their employer-sponsored health care, they are classified as an AEI.
- Furloughs, which are defined as a temporary loss of work or a total decrease in hours with a reasonable expectation of returning to employment, may result in a reduction in hours regardless of whether the employer instigated the furlough.
- What about other possible reasons for coverage termination?
- Examples include divorce and the loss of health insurance coverage because a dependent kid no longer qualifies as a dependent child (for example, owing to reaching the age of eligibility).
- In addition, the death of an employee does not constitute an involuntary termination of his or her employment contract.
- Employers that fail to submit the requisite notification will be subject to a $250 IRS penalty for each instance of failing to do so.
- Is there any guidance from the Internal Revenue Service on employer tax credits for recovering COBRA subsidies?
- During the calendar quarter in which the premium assistance is provided, the credit is used against the employer’s Medicare (HI) tax.
Any excess credit, on the other hand, is refundable, and government employers may ask for an advance payment of employer credits due to COVID-19 using IRS Form 7200, “Advance Payment of Employer Credits Due to COVID-19.” A updated draft of Form 7200, which contains a new section for the COBRA premium assistance tax credit, was recently issued by the Internal Revenue Service.
Employers in the government sector are then allowed to seek for tax credits to offset their costs.
The most current published Form 941 and accompanying instructions were produced in March 2021 and are only to be utilized for the quarter ending March 31, 2021, unless otherwise specified in the instructions.
In order to get guidance on how to report COBRA subsidies and apply for relevant tax credits, government entities will need to wait for future direction from the IRS, as well as the release of Form 941 and instructions for the quarter ending June 30, 2021.
It is not recommended that you act on the information contained in this Special Bulletin without seeking professional guidance. Employers are recommended to explore this with their own legal counsel or certified public accountant.