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New IRS Notice Offers Even More COBRA Premium Assistance Guidance

The Internal Revenue Service (the “IRS”) has released yet another round of guidance on COBRA subsidies under the American Rescue Plan Act (the “ARPA”). IRS Notice 2021-46 (the “Notice”) contains clarifying questions and answers for employers, supplementing the IRS notice issued back in May and described in McGrath North’s previous publication, IRS Answers Open Questions On ARPA COBRA Premium Subsidy. This Client Alert briefly summarizes the significant takeaways from the recently released guidance.

COBRA Premium Assistance During Extended Coverage Periods: According to the new guidance, an “assistance eligible individual” (or “AEI”) may qualify for COBRA premium assistance under the ARPA even if his or her original 18-month COBRA coverage period has already expired if the AEI qualifies for an extended period of coverage due to disability, a second qualifying event, or state mini-COBRA laws. The coverage extension must fall between April 1, 2021 and September 30, 2021.

End of Dental and Vision COBRA Coverage Period: If an AEI becomes eligible for coverage under any other disqualifying group health plan or Medicare, COBRA premium assistance eligibility ends. This holds true even if that coverage does not provide all of the benefits provided by the previously elected benefits subject to COBRA continuation coverage, such as dental or vision coverage. In other words, even if an individual previously elected dental-only or vision-only COBRA continuation coverage, the individual’s COBRA premium assistance eligibility would end once the individual qualifies for Medicare.

State Continuation Coverage: If a State continuation coverage program only covers a subset of that State’s residents, the program may still be considered comparable to Federal COBRA coverage that qualifies AEIs for COBRA premium assistance under the ARPA. In order to be comparable to Federal COBRA, State programs must provide coverage otherwise comparable to Federal COBRA and must comply with prior guidance described in IRS Notice 2021-31.

Entities Claiming the COBRA Premium Assistance Tax Credit: The Notice also includes clarification regarding the rules for entities claiming the COBRA premium credit. Generally, for purposes of these guidelines, the common law employer maintaining the plan is the current common law employer for AEIs whose hours have been reduced or the former employer for those individuals who were involuntarily terminated.

  • If a plan is subject to both Federal COBRA and State-mandated continuation coverage that is comparable to Federal COBRA, the common law employer is entitled to claim the COBRA premium assistance credit for any period of State-mandated continuation coverage even if such State-mandated continuation coverage requires the AEI to pay premiums directly to the insurer.
  • The Notice also specifies the payee entitled to credit within group health plans (other than multiemployer plans) subject to Federal COBRA that cover employees of different employers who are members of a single controlled group. In this situation, each common law employer that is a member of the controlled group is a premium payee able to claim the COBRA premium assistance credit pertaining to their employees or former employees.
  • If a group health plan (other than a multiemployer plan) covers employees of two or more unrelated employers, generally the common law employer is entitled to claim the COBRA premium assistance credit. However, exceptions do apply.
  • Finally, the Notice also provides guidance identifying the premium payee entitled to claim the COBRA premium assistance credit in instances involving third-party payers, business reorganization, state agencies, and fully insured Small Business Health Options Programs that are not subject to Federal COBRA.

With each new release from the IRS, there are new implications for plan sponsors and insurers seeking the COBRA premium tax credit and individuals seeking COBRA premium assistance. This Alert is not intended to cover all the relevant information for employers. Please contact a McGrath North employee benefits attorney for further guidance.