The Internal Revenue Service (IRS) recently published Notice 2021-31, with an extensive list of clarifications for the COBRA subsidy approved by the American Rescue Plan Act (ARPA). Subjects addressed in the Notice include Assistance Eligible Individuals (AEIs), involuntary termination of employment, furloughs, coverages eligible for the subsidy, and much more.
The following questions and answers highlight frequently asked questions.
This article is not intended as legal advice. Please contact your qualified benefits counsel if you need further clarification or assistance. For a full list of IRS questions and answers, refer to Notice 2021-31.
ARPA COBRA Premium Assistance – FAQs
Is a person who had a reduction in hours or involuntary termination, but then enrolled in an individual plan on a Health Insurance Exchange, eligible for COBRA and premium assistance?
Yes. A person who had a reduction in hours or was involuntarily terminated and is now enrolled in an individual health plan purchased from an exchange may be eligible to elect COBRA and for premium assistance. However, the person is not eligible for a premium tax credit to cover the cost of exchange coverage while they are enrolled in COBRA coverage.
Does a furlough count as a qualifying event for the ARPA COBRA premium subsidy?
Yes. A furlough means a temporary loss of employment or complete reduction in hours with expectation to return, so long as the employer and employee intend to keep the employment relationship. A furlough may be a reduction in hours.
What constitutes involuntary termination of employment for an AEI?
Involuntary termination of employment is when an employer severs the working relationship between itself and the employee, so long as the employee was willing to continue working.
For the purpose of the subsidy, an employee-initiated termination may be considered involuntary if the employee left their employment under circumstances where they knew they would be terminated otherwise.
Does retirement count as involuntary termination?
Generally, no, because retirement is voluntary. However, if an employee retires because the circumstances showed that they would be involuntarily terminated otherwise, then the retirement may be considered involuntary.
If an employee changes geographic locations and loses employment, does that count as involuntary termination?
If an employee resigns because their child is unable to attend school or another child care arrangement, is the employee considered an AEI?
No. However, if the individual maintains the ability to return to work, and the facts and circumstances indicate that the qualifying event is a temporary leave of absence such that the employer and employee intend to maintain the employment relationship, the qualifying event is a voluntary reduction in hours and the individual would be a potential Assistance Eligible Individual.
Is the death of an employee considered an involuntary termination of employment that makes qualified beneficiaries such as the spouse and dependent children of the employee potential AEIs?
No. The death of an employee is not a reduction in hours or an involuntary termination of employment. A loss of coverage due to the employee’s death would not result in the spouse and dependent children of the employee becoming potential Assistance Eligible Individuals.
Does an involuntary termination of employment include an employer’s decision not to renew an employee’s contract, including for an employee whose employer is a staffing agency?
Generally, yes. An employer’s decision not to renew an employee’s contract will be considered an involuntary termination of employment if the employee was otherwise willing and able to continue the employment relationship and there was an expectation of a renewed contract, or that employment would continue without a contract.
However, if the parties understood at the time they entered into the contract that it would expire after a defined set term, then completion of the contract does not count as involuntary termination of employment.
Can an AEI choose different coverage other than the plan they had when they were terminated and receive the subsidy?
An AEI can choose lesser coverage, but cannot choose a plan that is better than the one they were previously on. It is discretionary to the employer.
Editor’s Note: ARPA allowed a full COBRA subsidy until September 30, 2021 which has now passed. President Biden has announced a strategy called “Path out of the Pandemic” to recover from the financial and economic toll this health issue has created. The administration is also promoting a “Build Back Better” agenda to create jobs, cut taxes and lower costs to continue with economic recovery.
As executive branch, legislative and regulatory efforts continue, it’s important to stay up to date on how these programs may affect employers and employees. Contact your Third-Party Administrator (TPA) or qualified benefits counsel to determine the best direction for your employer plans.
The questions and answers are provided with assistance from the IRS Notice, National Law Review, and ThinkAdvisor.
DataPath, Inc offers compliant, cloud-based COBRA administration solutions for third party administrators.