On July 26, the Internal Revenue Service (IRS) issued Notice 2021-46, which provides further guidance on premium assistance for COBRA continuation coverage under ARPA. Topics covered include extended coverage periods, dental and vision coverage, state continuation, and who may claim the COBRA Premium Assistance credit.
The 11 Q&As are summarized below. For additional explanations and regulatory citations, see IRS Notice 2021-46.
Q1: Is COBRA premium assistance available for a potential Assistance Eligible Individual (AEI) whose original 18-month COBRA continuation coverage period has expired, but who is entitled to notify the plan or insurer, and has not yet done so, of intent to elect COBRA continuation coverage for an extended period due to a disability determination, second qualifying event, or an extension under State mini-COBRA, to the extent the extended period falls between April 1, 2021 and September 30, 2021?
A: Yes. COBRA premium assistance is available to such individuals if the original qualifying event was a reduction in hours or involuntary termination.
Q2: If an AEI previously elected COBRA continuation with premium assistance for dental-only or vision-only, do they cease to be eligible for premium assistance if they subsequently become eligible to enroll in other disqualifying group health plan coverage or Medicare that does not provide dental or vision benefits?
A: Yes. Eligibility for premium assistance ends when the AEI becomes eligible for coverage under any other disqualifying group health plan or Medicare, even if it does not include all of the benefits provided by the COBRA coverage.
Q3: Does a State continuation coverage program provide comparable coverage to COBRA for qualifying individuals if it covers only a subset of residents (for example, only State or local government employees)?
A: Yes. A State program does not fail to provide comparable coverage to Federal COBRA coverage solely because it covers only a subset of State residents, as long as it provides coverage otherwise comparable to Federal COBRA.
Q4: What is the general rule for determining which entity is the common law employer (CLE) maintaining the plan?
A: The CLE maintaining the plan is the current CLE for AEIs whose hours have been reduced or the former CLE for those individuals who have been involuntarily terminated from employment, which, in both cases, serves as the basis for the individual’s eligibility for COBRA continuation coverage.
Q5: For a period of State-mandated continuation coverage that is comparable to Federal COBRA and also subject to Federal COBRA (for example, a period of State-mandated continuation coverage that extends beyond the applicable Federal COBRA period), which entity is the premium payee entitled to claim the premium assistance credit?
A: The CLE is entitled to claim the credit because the plan is subject to Federal COBRA. Even if the State-mandated continuation coverage would require the AEI to pay premiums directly to the insurer after Federal COBRA ends, the insurer is not entitled to claim the credit.
Q6: If a group health plan subject to Federal COBRA covers employees of different CLEs that are members of a single controlled group, which entity is entitled to claim the premium assistance credit?
A: Each CLE member of the controlled group is the premium payee entitled to claim the credit with respect to its employees or former employees. Although group members are treated as a single employer for employee benefit purposes, each is a separate CLE for employment tax purposes
Q7. If a group health plan subject to Federal COBRA covers employees of two or more unrelated employers, which entity is entitled to claim the premium assistance credit?
A: The CLE is entitled to claim the credit, unless Notice 2021-31, Q&A-82 (as clarified in Q&A-8 of this notice) applies or there is a business reorganization as described in §54.4980B-9 and Q&A-9 of this notice.
Q8: If an entity provides health benefits to employees of another entity, but is not a third-party payer of their wages, may it be treated as a third-party payer for purposes of applying Notice 2021-31, Q&A-82?
A: No. For these purposes, a third-party payer is one that pays taxable wages and reports those wages and taxes on an aggregate employment tax return filed on behalf of its client(s). These are typically professional employer organizations (PEOs), certified professional employer organizations (CPEOs), or agents.
Q9: If there is a business reorganization described in §54.4980B–9, which entity is entitled to claim the premium assistance credit for coverage elected by AEIs who are also M&A qualified beneficiaries if the selling group remains obligated to make COBRA coverage available to M&A qualified beneficiaries?
A: If the selling group remains obligated to make COBRA continuation coverage available to M&A qualified beneficiaries after a business reorganization, the entity in the selling group that maintains the group health plan is entitled to claim the credit. If the CLE (which may be an entity in the buying group) is not obligated to make COBRA coverage available to AEIs, the CLE is not entitled to the credit after the business reorganization.
Q10: If a group health plan maintained by a State agency that provides health coverage to employees of various State and Local agencies is subject to Federal COBRA requirements under the Public Health Service Act, and AEIs would have been required to remit COBRA premiums directly to the State agency were it not for the premium assistance, which entity is the premium payee entitled to claim the credit?
A: The State agency is entitled to claim the credit. In this case, the CLE (if other than the State agency) would not be entitled to the COBRA premium assistance credit.
Q11: If a fully insured plan that is not subject to Federal COBRA is offered by an employer through a Small Business Health Options Program (SHOP), is the employer entitled to claim the credit?
A: Yes, but only in certain circumstances. If a fully insured plan not subject to Federal COBRA is offered through a SHOP exchange, the CLE is eligible to claim the credit if all of the following conditions are satisfied: (i) the employer participates in a SHOP exchange that offers multiple insurance choices to employees enrolled in the same small group health plan; (ii) the SHOP exchange provides the employer with a single premium invoice, aggregates all premium payments, and allocates and pays the applicable premium amounts to the insurers; (iii) the employer has a contractual obligation with the SHOP exchange to pay all applicable COBRA premiums to the exchange; and (iv) the employer would have received the State mini-COBRA premiums directly from AEIs were it not for the premium assistance. If all four of these conditions are satisfied, then the insurer is not eligible to claim the credit. However, in all other cases of a fully-insured plan subject solely to State mini-COBRA, the insurer (not the CLE) is entitled to the credit.
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