5/18/2021
Notice 2021-31: Premium Assistance for COBRA Benefits provides guidance for employers, plan administrators, and health insurers regarding the new American Rescue Plan Act of 2021 (ARP) credit available to them for providing continuation health coverage to certain individuals under COBRA.
The ARP provides a temporary 100% reduction in the premium that individuals would have to pay when they elect COBRA continuation health coverage following a reduction in hours or an involuntary termination of employment. It provides a corresponding tax credit for the entities that maintain group health plans, such as employers, multiemployer plans, and insurers. The 100% reduction in the premium and the credit are also available with respect to continuation coverage provided for those events under comparable State laws, sometimes referred to as "mini-COBRA."
Notice 2021-31 provides information regarding the calculation of the credit, the eligibility of individuals, the premium assistance period, and other information vital to employers, plan administrators, and insurers to understand the credit.
COBRA provides certain former employees, retirees, spouses, former spouses, and dependent children the right to temporary continuation of health coverage at group rates. It covers health plans maintained by private-sector employers with 20 or more full and part-time employees and employee organizations or federal, state or local governments. State mini-COBRA laws often provide similar benefits for insured small employers not subject to Federal COBRA.
BACKGROUND
Section 9501 of the ARP – COBRA Premium Assistance
Section 9501 provides a temporary 100% reduction in the premium otherwise payable by individuals and their families who elect COBRA continuation coverage due to a loss of coverage as the result of a reduction in hours or an involuntary termination of employment. The temporary premium assistance is also available to individuals enrolled in continuation health coverage under State programs that provide for coverage comparable to COBRA continuation coverage, or “mini-COBRA.” In this notice, continuation of health coverage under all these provisions is referred to as “COBRA continuation coverage,” the temporary premium assistance available under the ARP is referred to as “COBRA premium assistance” or “premium assistance,” unless otherwise specified.
An “Assistance Eligible Individual” is an individual who is a qualified beneficiary with respect to a period of COBRA continuation coverage during the period from April 1, 2021 - September 30, 2021, eligible for COBRA continuation coverage by reason of a qualifying event, except for voluntary termination of employment, and who elects COBRA continuation coverage. Health insurance issuers and group health plans are required to treat these individuals as having paid the full amount of their COBRA premium for the specified coverage. The employer, insurer, or multiemployer plan to whom premiums for COBRA continuation coverage are payable is entitled to a refundable tax credit against its share of Medicare taxes.
COBRA premium assistance is available as of the first period of coverage beginning on or after April 1, 2021 and will not be available for periods of coverage beginning after September 30, 2021. COBRA premium assistance does not extend beyond the period of COBRA continuation coverage if the period ends prior to September 30, 2021 for each Assistance Eligible Individual,
Premium assistance is not available if an individual is eligible for coverage under any other group health plan, or for Medicare. If an individual receiving premium assistance becomes eligible for coverage under any other group health plan or for Medicare, the premium assistance period ends. An individual who becomes eligible for coverage under any other group health plan or Medicare is required to notify the group health plan providing COBRA continuation coverage of their eligibility for the other coverage. If they fail to notify the group health plan, they may be subject to a penalty of $250 for each failure. If they fraudulently fail to notify the group health plan, they are subject to a penalty equal to the greater of $250 or 110% of the premium assistance improperly received after the end of eligibility for COBRA premium assistance.
An employer may allow an Assistance Eligible Individual to elect coverage different from the coverage under the plan they were enrolled in before the reduction in hours or involuntary termination of employment, and COBRA premium assistance will apply to that coverage. The premium for the different coverage option offered may not exceed the premium for the coverage the individual had before the reduction in hours or involuntary termination of employment. It must be coverage offered to similarly situated active employees and may not provide only excepted benefits, or be a health FSA or QSEHRA. The Assistance Eligible Individual has 90 days after the date of notice to elect to enroll in different coverage.
An extended election period for individuals who did not have an election of COBRA continuation coverage in effect on April 1, 2021, referred to as the “ARP extended election period” is available for an individual who would be an Assistance Eligible Individual if they had a COBRA continuation coverage election in effect on April 1, 2021, or who previously elected COBRA continuation coverage and discontinued it before April 1, 2021. The extended election period continues for 60 days after the individuals are provided notice of it. Resulting COBRA continuation coverage does not extend beyond the maximum period of COBRA continuation coverage that would have been required under the applicable COBRA continuation coverage provision if the individual had elected COBRA continuation coverage initially as required under that applicable COBRA provision, or had not discontinued the elected COBRA continuation coverage.
The plan must treat an Assistance Eligible Individual as having paid the full premium, or they will fail to meet the applicable continuation coverage requirements, which may result in imposition of Section 4980B excise tax.
Section 6432 of the Code – COBRA Premium Assistance Credit
§ 6432 provides that the “person to whom premiums are payable for continuation coverage” is allowed a “premium assistance credit” for each calendar quarter against the tax imposed by § 3111(b), or against so much of the taxes imposed under § 3221(a) as are attributable to the rate in effect under § 3111(b), of an amount equal to the premiums not paid by Assistance Eligible Individuals for COBRA continuation coverage by reason of § 9501 of the ARP with respect to that calendar quarter. If, for the calendar quarter for which the credit is allowed, the amount of the credit allowed is in excess of the tax imposed by § 3111(b), or so much of the taxes imposed under § 3221(a) as are attributable to the rate in effect under § 3111(b), after reduction for any credits allowed under §§ 3131, 3132, and 3134, the excess is treated as an overpayment that is refunded under §§ 6402(a) and 6413(b).
The “person to whom premiums are payable” is
(1) the multiemployer plan, in the case of a group health plan that is a multiemployer plan (as defined in § 3(37) of ERISA)
(2) the employer, in the case of a group health plan, other than a multiemployer plan, that is (a) subject to Federal COBRA, or (b) under which some or all of the coverage is not provided by insurance (that is, a plan that is self-funded, in whole or in part) or
(3) the insurer providing the coverage, in the case of any other group health plan not described in (1) or (2) (generally, fully insured coverage subject to State continuation coverage requirements, not Federal COBRA).
In this notice, the “person to whom premiums are payable” is sometimes referred to as the “premium payee.”
Any penalty for failure to make a deposit of the tax imposed by § 3111(b), or so much of the taxes imposed under § 3221(a) as are attributable to the rate in effect under § 3111(b), is waived if the Secretary of the Treasury determines the failure was due to anticipation of the premium assistance credit. Notice 2021-24: Relief from Penalty for Failure to Deposit Employment Taxes provides that the penalty does not apply for failure to timely deposit employment taxes - withheld income taxes, taxes under FICA, and taxes under RRTA, if:
(1) the employer is a person to whom premiums are payable
(2) the amount of employment taxes that the employer does not timely deposit (after reduction for other credits) is less than or equal to the amount of the employer’s anticipated credits for the calendar quarter as of the time of the required deposit, and
(3) the employer did not seek an advance credit by filing Form 7200 with respect to the anticipated credits it relied upon to reduce its deposits.
The statute of limitations for the assessment of any amount attributable to the credit to 5 years after the later of the date on which the original return which includes the calendar quarter with respect to which the credit is determined is filed, or the date on which that return is treated as filed under § 6501(b)(2).
The Secretary shall issue regulations or other guidance, forms, instructions, and publications as necessary to carry out § 6432, including allowing the credit to third-party payers.
The gross income of any person allowed the premium assistance credit is increased, for the taxable year which includes the last day of any calendar quarter with respect to which the credit is allowed, by the amount of the credit. No credit is allowed with respect to any amount taken into account as qualified wages under
§ 2301 Employee Retention Credit
§ 3134 Employee retention credit for employers subject to closure due to COVID–19
Qualified health plan expenses under §§ 7001(d) or 7003(d) of the Families First Coronavirus Response Act, or
§3131 Credit For Paid Sick Leave or § 3132 Payroll Credit For Paid Family Leave.
The amount of COBRA premium assistance is excluded from an individual’s gross income.
Emergency Relief Notices
The Extension of Certain Timeframes for Employee Benefit Plans, Participants, and Beneficiaries Affected by the COVID-19 Outbreak provides the extension of certain timeframes under the ERISA and the Internal Revenue Code for group health plans, disability and other welfare plans, pension plans, and participants and beneficiaries of these plans during the COVID-19 National Emergency.
Plans must disregard certain periods beginning March 1, 2020 until 60 days after the announced end of the National Emergency or other date announced (Outbreak Period) in determining the time by which certain actions must be taken or are permitted to be completed.
EBSA Disaster Relief Notice 2021-01 clarifies that disregarded periods under the Joint Notice - Extension of Certain Timeframes for Employee Benefit Plans, Participants, and Beneficiaries Affected by the COVID-19 Outbreak run until the earlier of
(1) one year from the date the person was first eligible for relief or
(2) 60 days after the announced end of the National Emergency.
The Joint Notice and the EBSA Disaster Relief Notice 2021-01 are referred to in this notice as the “Emergency Relief Notices.”
The periods and dates subject to the Emergency Relief Notices include:
(1) the 60-day election period for COBRA continuation coverage under § 4980B(f)(5)
(2) the date for making COBRA premium payments pursuant to § 4980B(f)(2)(B)(iii) and (C) and
(3) the date for plans to provide a COBRA election notice under § 4980B(f)(6)(D)
QUESTIONS AND ANSWERS
The 86 questions and answers in the notice address issues that have arisen with respect to COBRA premium assistance available for COBRA continuation coverage under the ARP.
Read IRB 2021-23, June 7, 2021, for the full text.