IRS Releases Long-Awaited Guidance for Premium-Assisted COBRA Benefits Under ARP
The IRS has released Notice 2021-31, the long-awaited guidance surrounding Premium-Assisted COBRA required of employers/insurance carriers under the American Rescue Plan (ARP). As a reminder of the previous information released about Premium-Assisted Continuation Coverage, please see our previous article on the subject. The following are key issues addressed by the newly-released guidance:
1. An Assistance Eligible Individual (AEI) is the term used to describe an employee or beneficiary who is eligible for premium assisted continuation coverage under ARP. The law states that a beneficiary is an AEI only in the event of a loss of coverage due to the following circumstances:
a. Reduction in hours (voluntary or involuntary)
b. Involuntary termination of employment, including:
i. Resignations by employees for material location change of worksite or a material reduction in work hours;
ii. Employees who are offered a severance payment to terminate employment, if that employee were to be terminated regardless
iii. Constructive discharge (fact-based determination)
An AEI can be both an employee and a beneficiary (spouse or dependent), so long as loss of health coverage was due to the above circumstances. This means that loss of coverage triggered by a divorce or an aging-out of dependent status will not trigger premium assistance.
2. Employers must retain documentation of employee’s eligibility for Premium-Assisted Continuation Coverage to receive reimbursement from the federal government. To provide greater ease of access to both employers and employees, an employer may require employee self-certification of the following as a condition of receiving the Premium-Assisted Continuation Coverage:
a. An employee’s self-certification that they qualify for AEI status (their health coverage was lost due to reduction in hours or involuntary termination not including gross misconduct);
b. An employee’s self-certification that they are not eligible for any other health coverage that would disqualify them from receiving the Premium-Assisted Continuation Coverage (such as Medicare, an HRA, or a spouse’s group health plan).
Employers may rely on these certifications to receive reimbursement from the government unless the employer has actual knowledge that these attestations are incorrect.
3. An employee who becomes eligible for a group health plan with a waiting period is only considered “eligible” for that plan (for ARP purposes) after the end of that waiting period.
4. An individual who is currently on the individual Health Insurance Exchange may become eligible for Premium-Assisted Continuation Coverage even while enrolled in a marketplace plan. However, enrollment in Premium-Assisted Continuation Coverage will prevent that individual from receiving a premium tax credit for Marketplace coverage.
5. Premium-Assisted Continuation Coverage is available to individuals who are currently on COBRA due to disability or a second qualifying event, as long as the original qualifying event was involuntary termination or a reduction in hours.
6. COBRA premium assistance is only available to those considered AEI. A spouse or dependent child who was not a beneficiary under the plan before the qualifying event is not a qualified beneficiary. As a result, this individual will not be eligible for Premium-Assisted Continuation Coverage regardless of their eligibility to obtain coverage on the employee’s plan.
B. Eligible Plans
1. Premium-Assisted Continuation Coverage is available for the following health plans:
a. Vision-only plans;
b. Dental-only plans;
c. Retiree health plans (so long as that coverage is also offered to active employees and the amount charged for that coverage does not exceed COBRA’s allowable limits);
e. ICHRAs (only to the HRA, not the underlying coverage);
2. If the employer discontinues the plan that an AEI is currently enrolled on with Premium-Assisted Continuation Coverage, the employer must give the employee the opportunity to enroll in a similar plan offered by the employer (with Premium-Assisted Continuation Coverage).
3. Employers must determine an employee’s status as an AEI at the time of the qualifying event. This means that, if an employer was large enough for COBRA’s rules when the qualifying even happened, the employer must offer Premium-Assisted Continuation Coverage to that employee regardless of employer’s current size.
4. The ARP Extended Election Period only applies only to group health plans subject to Federal COBRA, not State equivalents.
5. If an employee is on a plan that contains both AEI and non-AEI dependents, the employer need only provide premium assistance for the AEI dependents. The employee is still responsible for payments regarding non-AEI dependents.
1. An employer can claim the credit from the federal government by filling out the amount of credit and the number of employees on Premium-Assisted Continuation Coverage on the appropriate tax return (usually Form 941) when those forms are filed.
2. If an employee is to be reimbursed under ARP for an ICHRA, the credit an employer will receive from the government will be calculated to a maximum of 102% of the amount actually reimbursed to the employee.
As noted at the end of the FAQ, this is not the final document that the IRS will distribute regarding ARP and COBRA: they are currently working with the Department of Labor to release further guidance in the near future. FNA will update this document when such guidance becomes available.
You can read the entire FAQ HERE.
Heather Reynolds, ESQ