By Pension and Benefits Editorial Staff
The IRS has issued additional guidance on the premium assistance and tax credit under the American Rescue Plan Act of 2021 (ARPA) for continuation of health coverage under COBRA. Following enactment of the ARPA, the IRS addressed issues with respect to COBRA premium assistance in Notice 2021-31. This new notice, 2021-46, supplements Notice 2021-31 and addresses additional issues.
Claiming the credit. The notice explains the general rule for determining which entity is the common law employer maintaining the plan as described in Notice 2021-31, Q&A-72. The common law employer maintaining the plan is the current common law employer for Assistance Eligible Individuals (AEI) whose hours have been reduced or the former common law employer for those individuals who have been involuntarily terminated from employment, which, in both cases, serves as the basis for the individual’s eligibility for COBRA continuation coverage. Generally, when the requirements in Code Sec. 6432(b)(2) are satisfied, the common law employer is the entity entitled to claim the credit, subject to the exceptions set forth in Notice 2021-31.
If a plan (other than a multiemployer plan) subject to federal COBRA covers employees of two or more members of a controlled group, each common law employer that is a member of the controlled group is the premium payee entitled to claim the COBRA premium assistance credit with respect to its employees or former employees. Although all of the members of a controlled group are treated as a single employer for employee benefit purposes, each member is a separate common law employer for employment tax purposes. Therefore, the common law employer is the premium payee, unless certain exceptions apply.
In addition, if a group health plan (other than a multiemployer plan) subject to federal COBRA covers employees of two or more unrelated employers, the premium payee entitled to claim the premium assistance credit is the common law employer, unless certain exceptions apply.
Business reorganization. If a selling group remains obligated under Reg. §54.4980B-9 to make COBRA continuation coverage available to M&A qualified beneficiaries after a business reorganization, the entity in the selling group that maintains the group health plan is the premium payee entitled to claim the COBRA premium assistance credit. If the common law employer, which may be an entity in the buying group, is not obligated to make COBRA continuation coverage available to AEI, the common law employer is not entitled to the COBRA premium assistance credit after the business reorganization.
Fully insured plan not subject to COBRA. If a fully insured plan that is not subject to COBRA is offered by an employer through a Small Business Health Options Program (SHOP), the employer is the premium payee entitled to claim the premium assistance credit in certain circumstances.
If a fully insured plan that is not subject to Federal COBRA is offered by an employer through a SHOP exchange, the common law employer is treated as the premium payee and is therefore eligible to claim the premium assistance credit with respect to coverage in the plan if all of the following conditions are satisfied:
- the employer participates in a SHOP exchange that offers multiple insurance choices to employees enrolled in the same small group health plan;
- the SHOP exchange provides the participating employer with a single premium invoice, aggregates all premium payments, and then allocates and pays the applicable premium amounts to the insurers;
- the participating employer has a contractual obligation with the SHOP exchange to pay all applicable COBRA premiums to the SHOP exchange; and
- the participating employer would have received the state mini-COBRA premiums directly from the AEI were it not for the COBRA premium assistance.
If all four of these conditions are satisfied, then the insurer of a plan that is not subject to federal COBRA is not treated as the premium payee with respect to coverage in the plan and is, therefore, not eligible to claim the credit. However, in all other cases of a fully-insured plan subject solely to state mini-COBRA, the insurer (and not the common law employer) is the premium payee entitled to the premium assistance credit, which is the general rule set forth in Notice 2021-31, Q&A-72.
Extended coverage periods. The notice also explains that if the original qualifying event was a reduction in hours or an involuntary termination of employment, COBRA premium assistance is available to an individual who is entitled to elect COBRA continuation coverage for an extended period due to a disability determination, second qualifying event, or an extension under state mini-COBRA, to the extent the extended period of coverage falls between April 1, 2021, and September 30, 2021, even if the individual had not notified the plan or insurer of the intent to elect extended COBRA continuation coverage before the start of that period.
Dental and vision coverage. Eligibility for COBRA premium assistance ends when the AEI 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 previously elected COBRA continuation coverage. For example, eligibility for Medicare, which generally does not provide vision or dental coverage, ends eligibility for premium assistance related to all previously elected COBRA continuation coverage, including previously elected dental-only or vision-only COBRA continuation coverage.
State coverage. A state program does not fail to provide comparable coverage to federal COBRA continuation coverage solely because the program covers only a subset of state residents, as long as the program provides coverage otherwise comparable to federal COBRA. For more information on comparable state continuation coverage (see Notice 2021-31, Q&A-61 and 62). Thus, a state law that provides continuation coverage only for employees of a state or local government unit may be comparable coverage that qualifies AEI for COBRA premium assistance under the ARPA.
SOURCE: Notice 2021-46, I.R.B. 2021-33, August 16, 2021.
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