About

As employment law constantly changes, the attorneys at Bean, Kinney & Korman stay up to date on the law as it develops. Our blog topics focus on those changes and what you need to know about them, ranging from severance agreements and the FLSA to social media in the workplace and recent court decisions. If you are interested in having us cover a specific topic, please let us know.

Contact Us

Topics

Archives

Select Month:

Contributors

COBRA Subsidies for Employees and Tax Credits for Employers Under the American Rescue Plan Act of 2021
COBRA Subsidies for Employees and Tax Credits for Employers Under the American Rescue Plan Act of 2021

President Biden signed the American Rescue Plan Act of 2021 (the “ARPA”) into law on March 11, 2021. The $1.9 trillion relief package contains several provisions that will impact employers, including a requirement that employers provide “assistance eligible individuals” (defined below) with fully subsidized COBRA continuation coverage premiums for the time period of April 1, 2021 through September 30, 2021, with such costs to be offset by a refundable credit against the employer’s share of Medicare tax under a newly added Internal Revenue Code section.

COBRA Continuation Coverage – the Basics

COBRA continuation coverage provides group health plan continuation coverage rights for covered participants and beneficiaries. In general, an individual who was covered by a group health plan on the day before the occurrence of a COBRA-qualifying event, e.g., a termination of employment, or a reduction in hours that causes loss of coverage under the plan, may be able to elect COBRA continuation coverage due to that qualifying event. Individuals with such a right are referred to as qualified beneficiaries. Under COBRA, group health plans must provide “qualified beneficiaries,” i.e., covered employees and their families, with certain notices explaining their rights to COBRA continuation coverage.

ARPA Statutory Subsidies for COBRA Continuation Coverage

The ARPA provides for full COBRA premium subsidies to help “assistance eligible individuals,” as discussed below, continue their group health benefits. The statutory premium subsidies are also available for continuation coverage under applicable state mini-COBRA laws.

More specifically, the new law requires employers to pay 100% of COBRA premiums (the subsidy also covers the 2% administrative fee permitted under federal tax law) for qualified beneficiaries and covered family members of the qualified beneficiary, for up to a six-month period, from April 1, 2021 through September 30, 2021. The statutory subsidies do not extend beyond September 30, 2021.

The COBRA premium assistance provisions apply to all group health plans sponsored by private-sector employers or unions that are subject to the COBRA rules under the Employee Retirement Income Security Act of 1974.

Who is an Assistance Eligible Individual for COBRA Premium Subsidies Under ARPA?

COBRA premium subsidies are available to “Assistance Eligible Individuals,” which is defined by the new law as a COBRA qualified beneficiary who meets the following requirements during the period from April 1, 2021 through September 30, 2021:

  • Is eligible for COBRA continuation coverage due to a COBRA-qualifying event and elects COBRA continuation coverage; or
  • Is a qualified beneficiary whose COBRA-qualifying event occurred prior to April 1, 2021 and who did not elect COBRA continuation coverage when it was first offered prior to that date, or who elected COBRA continuation coverage but is no longer enrolled (e.g., an individual who dropped continuation coverage because he or she was not able to continue paying the premium), provided that the maximum period of COBRA continuation coverage has not yet expired (measured as if COBRA continuation coverage had been elected or not discontinued).

Note that eligibility for COBRA premium subsidies ends at the point an individual becomes eligible for other group health coverage, such as through a new employer’s plan or a spouse’s plan, or if the individual is or becomes eligible for Medicare.

What Notices are Required under the ARPA?

The U.S. Department of Labor (“DOL”) has developed two model notices for use under the ARPA. The first model notice is applicable to qualified beneficiaries who have a COBRA-qualifying event occurring during the statutory subsidy period from April 1, 2021 through September 30, 2021. 

The DOL’s second model notice is applicable to Assistance Eligible Individuals who are currently enrolled in COBRA continuation coverage for a qualifying event that occurred prior to April 1, 2021, and to those who would currently be Assistance Eligible Individuals if they had elected and/or maintained COBRA continuation coverage (the “Extended Election Period”).

May 31, 2021 is the deadline for distribution of the required Extended Election Notices. Statutory fines may be assessed for missed notice deadlines. An additional follow up notice must be sent to all individuals whose COBRA premium subsidy will end prior to September 30, 2021 (for reasons other than the individual obtaining new healthcare coverage or Medicare coverage). The follow up notice must be provided during the 15 day to 45-day window before the individual’s COBRA subsidy ends. It must identify the expiration date and, if applicable, that coverage may remain available through unsubsidized COBRA coverage or other coverage.

Premium Assistance Tax Credits for COBRA Continuation Coverage under the ARPA

Under ARPA, employers providing premium assistance to eligible individuals will continue paying the full premium to the insurer but will receive a tax credit against the employee’s share of Medicare tax. Employers who voluntarily provide COBRA coverage for eligible individuals may cease to provide such coverage during the 6-month subsidy period.

Employers may claim a tax credit to offset 100% COBRA premium subsidy available during the six-month statutory subsidy period from April 1, 2021 to September 30, 2021. Assistance Eligible Individuals remain eligible for the premium subsidy until they become eligible for: (i) Medicare benefits or (ii) coverage under another group health plan, or (iii) their COBRA coverage period expires. Assistance Eligible Individuals are eligible for assistance if they: (i) are qualified for COBRA coverage due to a reduction in hours or an involuntary termination in employment not due to the employee’s gross misconduct; and (ii) elect COBRA continuation coverage. For individuals not qualifying for COBRA premium assistance, employers should continue to charge them the regular COBRA rate.

Individuals eligible for assistance will not be taxed on the amount of the premium assistance. Eligible individuals paying for the continued coverage will have to be reimbursed by the plan if they pay for premiums not required due to premium assistance.

While we are expecting additional guidance from the Treasury Department and the IRS, the most likely scenario is that employers will claim the credit on their quarterly Forms 941 and may request the advance on Form 7200 (Advance Payment of Employer Credits Due to COVID-19) if the actual or estimated credit exceeds employer’s share of Medicare taxes for the quarter. Additional guidance is expected for subsidies for employers providing coverage under state COBRA laws.

Next Steps for Employers?

Stay tuned for more details. The ARPA is still brand new, and employers can anticipate that the DOL will be providing additional guidance through updates to its initial FAQs and may also issue regulations to fill in some of the gaps and ambiguities in the legislation. We will be providing updates when more information becomes available from the DOL. In the interim, employers should be taking steps to comply with the ARPA, working to identify all individuals who may be eligible for COBRA subsidies, especially those who may qualify under the extended COBRA election period.

If you have questions or need any assistance, please contact Doug Taylor at (703) 525-5586 or rdougtaylor@beankinney.com or Dusko Stojkov at (703) 526-4716 or dstojkov@beankinney.com.

This article is for informational purposes only and does not contain or convey legal advice. Consult a lawyer. Any views or opinions expressed herein are those of the authors and are not necessarily the views of any client.

  • Dusko J. Stojkov
    Shareholder

    Dusko is a shareholder with Bean, Kinney & Korman representing a broad range of clients in tax and corporate finance matters. His practice consists of assisting businesses in handling complex domestic and international tax issues ...

  • R. Douglas  Taylor, Jr.
    Shareholder

    Douglas Taylor is a shareholder of Bean, Kinney & Korman. For nearly 30 years, Doug has provided timely and practical legal advice and representation to businesses, business owners, and executives on a wide range of federal, state ...