Background

The American Rescue Plan Act of 2021 (ARP Act) includes a temporary six-month COBRA subsidy when group health plan coverage is lost due to reduction in hours or an involuntary termination. The subsidy first became available on April 1, 2021.

The subsidy will generally end on September 30, 2021. However, it will end earlier for individuals who become eligible for other group coverage or Medicare, or whose maximum period of COBRA coverage ends before September 30.

We discussed the ARP Act’s COBRA subsidy in our March 11, 2021 insight. We summarized the first round of Treasury/IRS guidance in our May 20, 2021 insight.

The latest guidance

The latest guidance, Notice 2021-46, is in the form of 11 questions and answers. This insight provides an overview that highlights significant issues addressed in the notice:

• Eligibility during extended coverage periods (beyond 18 months)
• Eligibility for other group health coverage
• Entities that are entitled to claim the premium subsidy in specific situations

Eligibility during extended coverage periods

COBRA premium assistance is available to an individual who is eligible for COBRA for an extended period (beyond 18 months), if the extended period falls between April 1, 2021 and September 30, 2021, and is due to:

• A disability determination
• A second qualifying event (such as divorce)
• An extension required under a state mini-COBRA law

This is the case even if the individual is not enrolled in COBRA as of April 1, 2021 (as the earlier Treasury/IRS notice seemed to imply). This is also the case if the individual did not notify the plan of the right to the extension prior to April 1, 2021, as long as the individual still has the right to notify the plan of eligibility for the extension. Because many notification deadlines have been extend for a year under the Emergency Relief Notices issued by the DOL, many individuals may still have time to provide that notification.

Eligibility for other group health coverage

Individuals are not eligible for the COBRA subsidy if they are (or become) eligible for other group health coverage or Medicare. The notice clarifies that an individual cannot receive the COBRA subsidy for dental-only or vision-only coverage if the individual is eligible for medical coverage, even if that medical coverage does not include dental or vision benefits, or is eligible for Medicare, which generally does not include dental or vision coverage.

On the other hand, eligibility for excepted benefits only, such as stand-alone dental or vision coverage, would not terminate eligibility for the COBRA subsidy for medical coverage.

Entities that are entitled to claim the tax credit

The COBRA subsidy is obtained through a payroll tax credit. The notice clarifies which entity is entitled to claim the payroll tax credit in certain situations.

• Multiemployer plans claim the payroll tax credit even if they do not have employees or have any payroll tax liability.
• In other situations involving federal COBRA, the general rule is that the tax credit is claimed by the common law employer maintaining the group health plan. The common law employer is the current common law employer for individuals eligible for COBRA due to a reduction in hours, or the former common law employer for individuals eligible for COBRA due to involuntary termination.
• If a group health plan covers employees of different common law employers that are members of a single controlled group, each common law employer that is a member of the controlled group generally claims the credit for its own employees or former employees.
• If a group health plan covers employees of two or more unrelated employers, each common law employer generally claims the tax credit.
• A multiple employer welfare arrangement (MEWA) is generally not entitled to claim the credit. Instead, each common law employer that participates in the MEWA claims the credit.
• One question and answer addresses a group health plan that is maintained by an agency of a state government (“state agency”) that provides health coverage to employees of various agencies of the state and local governments. If the state agency is obligated to provide COBRA and assistance eligible individuals would have been required to remit COBRA payments directly to that state agency were it not for the COBRA subsidy, the state agency is entitled to claim the credit. In this case, the common law employer (if other than the state agency) would not be entitled to claim the credit.

Implications for plan sponsors and administrations

Plan administrators should carefully read the latest guidance and review it with their plan professionals and tax advisors. Entities (other than multiemployer plans) that are not the individual’s common law employer will want to review the notice with care.

The DOL has not issued additional guidance on the notice requirements, including how far back plan sponsors must look to find individuals who are potentially eligible for the COBRA subsidy.