IRS Issues New FAQs Concerning ARPA COBRA Subsidies
On July 26, 2021, the IRS issued Notice 2021-46, which includes 11 additional FAQs concerning the COBRA premium assistance requirements under the American Rescue Plan Act of 2021 (ARPA). These FAQs provide additional clarification on the following topics: eligibility for premium assistance in cases of extended coverage periods, dental and vision coverage, the applicability of premium assistance to certain kinds of state continuation coverage, and additional discussion concerning which entity is entitled to claim the premium subsidy tax credit.
Of note is FAQ #2, which states that eligibility for COBRA premium assistance ends when the Assistance Eligible Individual (AEI) becomes eligible for coverage under any other disqualifying group health plan or Medicare, even if the other coverage does not include all the benefits provided by the previously elected COBRA continuation coverage. If the AEI had dental or vision coverage through COBRA, and enjoyed the premium assistance provided under ARPA, that AEI will lose the assistance if they become eligible for group health coverage or Medicare, even if that group health coverage or Medicare does not provide dental or vision coverage.
The notice primarily focuses on issues surrounding who can claim the tax credit for providing premium assistance. For instance, FAQ #5 deals with the situation wherein state continuation and federal COBRA run concurrently, and the state continuation program continues to run after the federal COBRA coverage period is exhausted. In that circumstance, the entity that can claim the premium subsidy credit is the common law employer, even if the state-mandated continuation coverage would require the AEI to pay the premiums directly to the insurer after the period of federal COBRA ends.
In addition, FAQ #9 deals with business reorganizations (e.g., acquisitions), in which the seller remains obligated to make available COBRA continuation coverage to the individuals who became qualified beneficiaries because of the reorganization. In these cases, the FAQ states that the seller that maintains the group health plan is the entity entitled to claim the COBRA premium assistance credit, even if the buyer becomes the common law employer after the sale (if the buyer is not obligated to make available COBRA continuation coverage to AEIs).
Employers should be aware of this notice and the issues relating to the ARPA COBRA subsidy that it addresses. The NFP Benefits Compliance team will provide more detail and analysis regarding this notice in the August 3, 2021, edition of Compliance Corner.
The NFP Benefits Compliance team maintains its own FAQ document regarding ARPA compliance obligations, which you can find here.
August 9, 2021 Webinar Archive: ARPA Benefits Compliance Updates & FAQs, Part 6
Join the Benefits Compliance team for the sixth installment of our American Rescue Plan Act webinar series. We will address ongoing compliance with ARPA COBRA premium assistance, highlighting continued compliance obligations and the recent IRS guidance. Employers will walk away with an understanding of how the new guidance clarifies the rules and other requirements to continue to comply with the law.
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