IRS Issues Additional FAQs Concerning the ARPA COBRA Subsidy

 

On July 26, 2021, the IRS issued Notice 2021-46, which lists 11 more FAQs concerning the COBRA premium assistance requirements under the American Rescue Plan Act of 2021 (ARPA). These FAQs provide additional clarification on the following topics: eligibility for premium assistance in cases of extended coverage periods, dental and vision coverage, the applicability of premium assistance to certain kinds of state continuation coverage, and additional discussion concerning which entity is entitled to claim the premium subsidy tax credit.

Extended Coverage Periods
FAQ #1 provides that if an individual had not notified the plan or insurer of the intent to elect extended COBRA continuation coverage before the start of that period but would qualify for COBRA continuation coverage for an extended period due to a disability determination, second qualifying event, or an extension under State mini-COBRA, then that individual is entitled to premium assistance. However, the original qualifying event must have been either a reduction in hours or an involuntary termination of employment. In addition, premium assistance is available only to the extent the extended period of coverage falls between April 1, 2021 and September 30, 2021.

Dental and Vision Coverage
FAQ #2 states that eligibility for COBRA premium assistance ends when the assistance eligible individual (AEI) becomes eligible for coverage under any other disqualifying group health plan or Medicare, even if the other coverage does not include all the benefits provided by the previously elected COBRA continuation coverage. If the AEI had dental or vision coverage through COBRA, and enjoyed the premium assistance provided under the ARPA, that AEI will lose the assistance if they become eligible for group health coverage or Medicare, even if that group health coverage or Medicare does not provide dental or vision coverage.

Limited State Continuation Coverage
FAQ #3 concerns state continuation coverage programs that apply only to a subset of state residents, such as state or local government employees. 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 if the program provides coverage otherwise comparable to federal COBRA.

Entities That Can Claim the Premium Subsidy Tax Credit
FAQ #4 provides guidance on determining which entity is the “common law employer” that maintains the plan subject to COBRA coverage. The FAQ states that the common law employer maintaining the plan is the current common law employer for AEIs whose hours have been reduced or the former common law employer for those AEIs who have been involuntarily terminated from employment, which, in both cases, serves as the basis for the AEI’s eligibility for COBRA continuation coverage.

FAQ #5 deals with the situation wherein state continuation is applied in conjunction with federal COBRA and the state continuation program continues to run after the federal COBRA coverage period is exhausted. In that circumstance, the entity that can claim the premium subsidy credit is the common law employer, even if the state-mandated continuation coverage would require the AEI to pay the premiums directly to the insurer after the period of federal COBRA ends. Generally, in fully insured plans subject to state continuation coverage requirements, the carrier will be the entity entitled to claim the tax credit, so the new guidance describes a specific set of circumstances where that may not be the case.

FAQ #6 deals with plans that cover one or more members of a controlled group. If a plan (other than a multiemployer plan) subject to federal COBRA covers employees of two or more members of a controlled group, this FAQ states that each common law employer that is a member of the controlled group is the entity entitled to claim the COBRA premium assistance credit with respect to its employees or former employees. Although all 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. FAQ #8 deals with a potential exception to this principle.

FAQ #7 deals with group health plans (other than multiemployer plans) subject to federal COBRA that cover employees of two or more unrelated employers. This FAQ provides that under this circumstance, the entity entitled to claim the premium assistance credit is the common law employer.

FAQ #8 deals with a potential exception to the principle discussed in FAQ #7 as it pertains to third-party payers. A “third-party payer” for this purpose was defined under previous guidance as an entity that pays wages subject to federal employment taxes and reports those wages and taxes on an aggregate employment tax return that it files on behalf of its client(s). An example of a third-party payer is a PEO. Under previous guidance, a third-party payer can claim the premium tax credit if it: 1) maintains the group health plan, 2) is considered the sponsor of the group health plan and is subject to the applicable DOL COBRA guidance, including providing the COBRA election notices to qualified beneficiaries, and 3) would have received the COBRA premium payments directly from the AEIs were it not for the COBRA premium assistance.

FAQ #8 states that an entity that provides health benefits to employees of another entity, but it is not a third-party payer of those employees’ wages, will be treated as a third-party payer entitled to the premium assistance tax credit as described in the previous guidance.

FAQ #9 deals with stock sales and assets sales between entities, in which the selling group remains obligated to make COBRA continuation coverage available to the individuals who became qualified beneficiaries because of the sale. In these cases, the FAQ states that the entity in the selling group that maintains the group health plan is the entity entitled to claim the COBRA premium assistance credit, even if the buying group becomes the common law employer after the sale (if the buyer is not obligated to make COBRA continuation coverage available to AEIs).

FAQ #10 covers state agencies that maintain the health plans for other state agencies in the same state government. The FAQ states that if a state agency is obligated to make COBRA continuation coverage available to employees of various agencies of the state and local governments within the state, and the AEIs would have been required to remit COBRA premium payments directly to the state agency were it not for the COBRA premium assistance, the state agency is the entity entitled to claim the COBRA premium assistance credit.

Finally, FAQ #11 deals with employers who offer fully insured plans through a Small Business Health Options Program (SHOP) that are not subject to federal COBRA. Such employers may receive the premium assistance tax credit if certain factors apply:

1. The employer participates in a SHOP exchange that offers multiple insurance choices to employees enrolled in the same small group health plan
2. 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
3. The participating employer has a contractual obligation with the SHOP exchange to pay all applicable COBRA premiums to the SHOP exchange
4. The participating employer would have received the state mini-COBRA premiums directly from the AEIs were it not for the COBRA premium assistance.

The FAQ emphasizes that 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.

Although only two months remain in the ARPA COBRA premium assistance period, which ends on September 30, 2021, employers should be aware of these new clarifications to the ARPA premium subsidy requirements. Those FAQs that explain which party may claim the tax credit for providing premium assistance in mergers, acquisitions and other complex business arrangements will be particularly useful.

IRS Notice 2021-46 »