On July 26, 2021, the U.S. Internal Revenue Service (“IRS”) issued Notice 2021-46, providing additional guidance on the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) and premium assistance and tax credit provisions of the American Rescue Plan Act of 2021 (“ARPA”). As described in our Legal Update , ARPA requires employers to cover 100% of the cost of continuing group health coverage under COBRA from April 1, 2021 through September 30, 2021 for assistance eligible individuals (i.e., individuals who lose coverage due to an involuntary termination of employment or reduction of hours ). On May 18, 2021, the IRS issued guidance in IRS Notice 2021-31 as we described in our prior blog post to provide clarification for employers, plan administrators, and health insurers regarding this subsidy. Notice 2021-46 expands on that guidance.
The key points from IRS Notice 2021-46 are summarized below.
How Does the Subsidy Apply to Assistance Eligible Individuals Who Are Entitled To Extended Coverage Periods?
Notice 2021-46 clarifies that assistance eligible individuals may be entitled to the COBRA subsidy for extended coverage periods (e.g., disability extensions, second qualifying events or an extension under State mini-COBRA laws), even if the assistance eligible individual didn’t elect extended coverage before April 1, 2021.
The Notice provides an example of an individual who is involuntarily terminated and elects COBRA continuation coverage effective October 1, 2019. The individual’s 18-month COBRA continuation period would have lapsed March 31, 2021. However, on March 1, 2020, a disability determination letter was issued by the Social Security Administration providing that the individual was disabled as of November 1, 2019. This disability determination entitles the individual to the 29-month extended COBRA continuation coverage, but the individual failed to notify the plan of the disability determination by April 30, 2020, which is 60 days after the date of the issuance of the disability determination letter (as would normally be required to qualify for the COBRA disability extension period). However, under the EBSA Disaster Relief Notices 2020-01 and 2021-01, the individual has one year and 60 days from the issuance of the disability determination letter to notify the plan of the disability to extend COBRA continuation coverage. On April 10, 2021, the individual notifies the plan of the disability and elects ongoing COBRA coverage from April 1, 2021. Assuming the individual is not eligible for other disqualifying group health plan coverage or Medicare, the individual is an assistance eligible individual and is entitled to the COBRA premium assistance.
Does Eligibility For Other Health Coverage That Does Not Include Vision or Dental Benefits Terminate an Assistance Eligible Individual’s Eligibility For the COBRA Subsidy for Vision-Only or Dental-Only Coverage?
Yes. Eligibility for the COBRA premium assistance ends when the Assistance Eligible Individual becomes eligible for coverage under any other disqualifying group health plan or Medicare, even if the other coverage does not include all of the benefits provided by the COBRA coverage.
Which Entity May Claim the Tax Credit For the COBRA Subsidy?
Where a group health plan (other than a multiemployer plan) subject to COBRA covers employees of two or more employers, each common-law employer is generally treated as the premium payee entitled to claim the premium assistance tax credit with respect its own employees and former employees, even where such common-law employers are part of a controlled group.
The Notice also clarifies that an entity that provides health benefits to employees of another entity, but is not a third-party payer of their wages, will not be treated as a third-party payer for purposes of applying Notice 2021-31. For example, if a group health plan covers employees of two or more unrelated employers in a multiple employer welfare arrangement (“MEWA”), the entity entitled to claim the tax credit is generally the common law employer; the association that sponsors the MEWA is not entitled to claim the tax credit for the COBRA subsidy.
Reminder: Tell Participants that the Subsidy Period is Ending
As we mentioned in our previous Legal Update, ARPA requires plan sponsors to notify participants 15-45 days before their COBRA subsidy ends. Participants will need to be informed (i) when their subsidy ends, and (ii) how much their non-subsidized COBRA premium will be. Employers may already have sent this notice on a “one-off” basis to COBRA qualified beneficiaries whose 18 or 36 months of COBRA coverage has ended or will end before September 30th. However, the subsidy will expire on September 30, 2021 for all COBRA qualified beneficiaries (even if they may still have time remaining in their 18 or 36 month COBRA period); thus, employers may need to do one last bulk mailing. The mailing needs to go out any time between August 16, 2021 and September 15, 2021. The Department of Labor’s model notice is here.