IRS Issues Guidance on American Rescue Plan COBRA Subsidy
Wed May 19, 2021
On May 18, 2021, the IRS issued Notice 2021-31, a guidance document on the
American Rescue Plan Act (ARPA) subsidy for continuation health coverage
under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA).
The Notice discusses the background of the subsidy and includes 86 questions
and answers (Q&As) about its application.
The COBRA Subsidy
The ARPA subsidy covers 100% of COBRA and state mini-COBRA premiums
from April 1–Sept. 30, 2021, for certain assistance-eligible individuals whose
work hours were reduced or whose employment was involuntarily
terminated. The subsidy is funded via a tax credit provided to employers,
insurers or group health plans, according to the terms of the statute.
The IRS Guidance
Among the topics covered by the 40-page Notice are how to calculate and
claim the tax credit, including when a third-party payer is involved. According
to the guidance, employers must document individuals' eligibility for COBRA
premium assistance in order to claim the credit.
The Q&As further clarify that:
The subsidy is available for extended periods of COBRA coverage between April 1 and Sept. 30, 2021, due to a disability, second qualifying event or extension under state mini-COBRA.
Involuntary termination includes constructive discharge and termination for cause, but not gross misconduct.
Health reimbursement arrangements, dental-only plans and vision-only plans are covered by the subsidy.