IRS Answers Questions About ARPA’s COBRA Subsidy

Several weeks after the American Rescue Plan Act (ARPA) provided temporary Consolidated Omnibus Budget Reconciliation Act (COBRA) subsidies to eligible individuals, the IRS has issued a lengthy 40-page FAQ answering many employers’ lingering questions on how the subsidy works.

As previously reported, the ARPA provides for 100 percent premium subsidies for health insurance continuation under the federal COBRA for “assistance eligible individuals” who, due to an involuntary termination or reduction in hours, become eligible for and elect COBRA continuation coverage during the period beginning April 1, 2021, and ending September 30, 2021. The ARPA also allows a special second election opportunity for individuals who declined COBRA coverage or dropped coverage in the past and who would otherwise be eligible for COBRA as of April 1, 2021, if it were in effect.

Employers must front the initial cost of continuing group health care coverage for assistance eligible individuals, for which they can be reimbursed by tax credits against quarterly Medicare payroll taxes. The new law also imposes special notice requirements, for which the U.S. Department of Labor (DOL) issued model notices to assist with compliance. 

The new IRS content provides more comprehensive guidance on ARPA’s COBRA provisions. Some of the important issues addressed include:

  • Further clarifying who qualifies as an assistance eligible individual.
  • Employers’ ability to require individuals to provide self-certification or attestation regarding their eligibility status, which may be used to assist employers in substantiating their entitlements to tax credits.
  • Clarification on what constitutes an involuntary termination and reduction in hours.
  • Retiree health coverage as it relates to ARPA’s COBRA provisions.
  • Clarification that COBRA premium assistance is available for vision-only plans, dental-only plans and health reimbursement arrangements (HRAs).
  • Extensions under the COVID-19-related emergency relief notices issued in 2020.
  • The specifics of how to calculate and claim the premium assistance tax credit.

Employers should review the new IRS guidance with their legal counsel, COBRA administrators and/or insurers to ensure they properly claim the tax credits and are otherwise in compliance with ARPA’s COBRA provisions.

Additionally, employers should note that one of ARPA’s COBRA notice deadlines is fast approaching. Under the ARPA, plan administrators must provide notice of the COBRA premium assistance and special extended election provisions for individuals who declined COBRA coverage or dropped coverage in the past and who would otherwise be eligible for COBRA as of April 1, 2021, if it were in effect. This notice must be provided by May 31, 2021. Employers can review the DOL’s guidance and use the DOL’s model notices to help comply with this requirement.

James W. Ward, Employment Law Subject Matter Expert/Legal Writer and Editor

CalChamber members can read more about How the American Rescue Plan Act Affects Employers on HRCalifornia. Not a member? See how CalChamber can help you.

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