The IRS recently issued Notice 2021-31, which provides much-anticipated guidance for employers on the ARPA COBRA subsidy. The document is 40+ pages long, and the nature of much of the guidance is very detailed, very nuanced, and very narrow. It presents a plethora of situations, many of which most employers will not need to deal with directly or which only serve to clarify otherwise intuitive lines of thought. Add its sheer length, and you have a document that cannot be easily condensed or summarized into a short, meaningful article.
That said, following are 15 key takeaways that are relevant for employers. They are presented in a short format for easy consumption, with references to the specific FAQ document those that want to dive deeper. The summary is presented in the order of the FAQ document. However, we have also highlighted five items as “Critical Issue.” These reflect guidance which is either critical or surprising in nature.
Background on ARPA Subsidies
As a recap, ARPA provides a 100% COBRA premium subsidy for individuals who lost coverage due to a reduction in hours or due to an involuntary termination of employment (Assistance Eligible Individuals or AEIs). The premium subsidy is available for medical, dental, vision, HRA, and EAP coverages for up to six months, from April 1, 2021, through September 30, 2021. ARPA provides that COBRA premiums are “presumed paid” by AEIs and the employer (or insurer) to whom the premiums were to be paid is entitled to a tax credit against its share of Medicare taxes.
Key Takeaway #1: Self-Certification or Attestation (CRITICAL ISSUE)
Employers may require individuals to self-certify or attest to being eligible for the subsidy and not being eligible for another group health plan or Medicare. Employers may rely on this attestation for the purposes of claiming the tax credit. In an odd twist of wording, the IRS indicates that employers are not required to secure an attestation from AEIs, however, they ARE required to maintain documented proof and substantiation in order to claim the tax credit. COBRA reporting of AEIs that have provided attestation will suffice for this documentation. (Q-4, Q-5, Q6)
Key Takeaway #2: Waiting Period for New Coverage
If an AEI is “eligible for” other group health plan coverage but that plan has a waiting period, the subsidy can continue during the waiting period. (Q-9)
Key Takeaway #3: Exchange Coverage
If a Qualified Beneficiary is currently covered under an individual policy through a Health Insurance Exchange, they are eligible to drop the Exchange coverage, re-elect COBRA coverage, and receive the subsidy. (Q-13)
Key Takeaway #4: Retiree Coverage
If an individual would otherwise be an AEI but has access to retiree coverage, eligibility for the retiree coverage is not a disqualifying event so long as the retiree coverage is offered under the same group health plan as is provided for active employees. The premium credit would be limited to the premium for active employees. (Q-18, Q-36)
Key Takeaway #5: Only Spouse and Children (Not DPs ) (CRITICAL ISSUE)
Only a spouse or children who were covered on the day before the Qualifying Event (or a child born to or adopted by the covered employee during the COBRA period) are eligible for the subsidy. Other dependents, even though they may be eligible for coverage are not eligible for the subsidy. Of note here is coverage for Domestic Partners who may be covered under COBRA coverage, but who are not considered Qualified Beneficiaries under the COBRA law. This means they are not eligible for the subsidy. (Q-19)
Key Takeaway #6: What Constitutes an Involuntary Termination
There are 11 questions which outline various permutations of what constitutes an involuntary termination. Generally, these fall in line with a colloquial understanding of an involuntary termination. However, if unique circumstances arise, employers should review these questions for confirmation. (Q-24-Q-34)
Key Takeaway #7: No Partial Subsidy for Richer Plan Coverage (CRITICAL ISSUE)
If an employer allows a special enrollment and an employee elects a richer plan, the subsidy is not available for the equivalent cost of coverage under the base plan (with the employee paying the buy-up cost). To be clear, while not intuitive, no subsidy would be available if the employee elected a richer plan. There is an exception to this rule if the base plan is no longer available. In that case, the individual must be offered coverage under the “most similar” plan. (Q-41, Q-42)
Key Takeaway #8: Employer No Longer Subject to Federal COBRA
Employers that are no longer subject to federal COBRA (due to a reduction in the number of employees as of Jan 1, 2021) are still required to provide an extended enrollment period and ARPA subsidies to individuals who would otherwise be AEIs if their Qualifying Event occurred when they were subject to federal COBRA. Whether a QB is eligible to elect federal COBRA (and receive the ARPA subsidy) is determined by the employer’s status at the time of the Qualifying Event (not at the time ARPA would be administered). (Q-45)
Key Takeaway #9: Extended Election Only Applies to Federal COBRA
The extended election period (where QBs can jump back onto COBRA) only applies to federal COBRA, not to state COBRA-lookalike laws, unless the state law specifically provides for such a provision.
Key Takeaway #10: Extended Deadlines Don’t Apply
The election period for the ARPA extended election period is 60 days from receiving formal notification in order to receive the subsidy. The Emergency Relief Notice provisions which allow for extensions of timeframes for COBRA elections, extended payment deadlines, and non-contiguous retroactive coverage for COBRA elections do not apply. (Q56-Q59)
Key Takeaway #11: Subsidized Amount Is 102%
The subsidized amount is the full premium (or premium equivalent) plus the statutory 2% COBRA administration fee. (Q-63)
Key Takeaway #12: Employer Subsidies Don’t Qualify for ARPA Subsidy (CRITICAL ISSUE)
Employers who have provided any direct, pre-existing COBRA subsidy are NOT entitled to recoup any portion of their direct subsidy via the ARPA subsidy program. If an employer subsidy expires during the ARPA subsidy period, the employee would then be eligible for the ARPA subsidy. If an employer subsidized a portion of the COBRA premium, the AEI is eligible for an ARPA subsidy for the premium amount that was required to be paid by the Qualified Beneficiary. (Q-64)
Key Takeaway #13: Subsidy Calculations for Non-AEIs (CRITICAL ISSUE)
If an AEI also covers a non-AEI (for example, a DP or spouse who was added after the Qualifying Event), the amount of the subsidy calculation is based on the premium differential for those who are AEIs and those who are not. Here, an example is instructive. Assume the employee, DP, and 2 children are covered. The EE+Sp/DP+Child(ren) premium is $1,800, and the EE+ Child(ren) premium is $1,300. The amount of the ARPA subsidy would be $1,300 and the $500 cost attributable to the DP would not be subsidized. Alternatively, assume a 3-tier EE+2+ premium of $1,800, the subsidy for EE+Child(ren) coverage would be $1,800, and the DP would be covered at no additional cost. (Q-68)
Key Takeaway #14: Timing and Method of Tax Credit
Employers become entitled to the tax credit at the point when an election is made (for retroactive months) and on the first of each month thereafter for prospective months. The tax credit is taken against the employer portion of Medicare taxes on Form 941, Employer Quarterly Federal Tax Return. Employers may reduce their federal tax deposits up to the amount of the credit and/or request an advance (on Form 7200) of the amount if the credit exceeds the federal tax deposits. Note that tax credits taken are includible in gross income for employers. (Q-74, Q-75, Q-79)
Key Takeaway #15: No Tax Credit Refunds Required
If an AEI fails to provide notice that they are no longer eligible for the subsidy in a timely manner, the employer is still entitled to a previously taken tax credit (unless the employer knew of the individual’s eligibility for other coverage). (Q-78)
