The American Rescue Plan’s COBRA Subsidy: Questions Answered

Among its many other provisions, the American Rescue Plan Act (ARPA) included a subsidy for continuing health care coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). The ARPA subsidy covers 100% of COBRA and state mini-COBRA premiums from April 1st through September 30 of 2021, for certain individuals whose work hours were reduced, or employment terminated. The subsidy is funded via a tax credit issued to employers, insurers or group health plans.

On July 26, 2021 the IRS issued a notice to clarify some of the questions surrounding the subsidy, following on the heels of earlier guidance published in May of this year. Employers and insurers should review the terms of this notice in detail with a qualified benefits provider, but some of the questions answered include:

  • Is premium assistance available for individuals whose original 18-month COBRA period has expired, but who have failed to notify the plan of their intent to elect extended coverage due to a qualifying event? (Yes)
  • If an individual’s COBRA coverage included dental- or vision-only coverage and they become eligible to enroll in another plan that does not provide dental or vision, can they continue the COBRA coverage? (No)
  • Several questions and answers address which entity is entitled to the tax credit in a group health plan: the insurer/plan provider or the employer. In most circumstances, the premium payee – the employer – is entitled to the credit.
  • In the case of a merger or acquisition, which entity is entitled to claim the credit? (If the selling entity remains obligated to make COBRA coverage available, they may claim the credit. If not, they may not.)
  • If a fully insured plan not subject to Federal COBRA is offered by an employer via a Small Business Health Options Program (SHOP), is the employer entitled to claim the premium assistance credit? (Yes, but only if certain conditions are satisfied. If not, the insurer may claim the credit.)

Both the original rule and the clarifying advice from the IRS are laden with details and qualifying circumstances. Again, review the guidance with a qualified professional.

Questions about this or other benefits issues? Contact Consolidated Insurance.