The IRS has released a new Notice clarifying several important regulations under the American Rescue Plan as it pertains to COBRA and state continuation coverage. The Notice (presented in FAQ format) most extensively deals with who is considered a “premium payee” under ARPA (that is, who would receive reimbursement by the government from the ARP Premium Assistance program), but it also addresses several other important topics. Key insights from the Notice include:

- An employee whose original continuation coverage period was prior to the ARPA Premium Assistance Period of April 1, 2021-September 30, 2021 can still be eligible for premium assistance if they receive an extended coverage period due to a second qualifying event (either under COBRA or the applicable state continuation coverage), provided that the extended continuation coverage would fall within the Premium Assistance Period. This premium-assisted coverage is available even if the employee did not express to the plan an intent to extend their coverage prior to the beginning of the Premium Assistance Period.

- If the employee becomes eligible for other group health coverage (that would disqualify them from premium-assisted continuations coverage) or Medicare, then the employee’s entitlement to premium-assisted continuation coverage ends EVEN IF the new coverage does not provide all of the same benefits as the continuation coverage (such as vision or dental).

- State continuation coverage may still be considered “comparable coverage” to COBRA (such that it can participate in the Premium Assistance Program) EVEN IF it does not cover all individuals that federal COBRA would cover. If the state program provides coverage that is functionally similar to federal COBRA, a narrow eligibility pool will not affect that status.

- If a group health plan subject to federal COBRA covers two or more unrelated employers, then each common law employer would be the premium payee.

- In the event of a business reorganization, which employer entity is the premium payee depends on the specific circumstances.If, in the reorganization agreement, the selling group is required to maintain COBRA benefits to the employees, then the entity within the selling group that maintains group health plans would be the premium payee.

You can read the entire Notice HERE.