Since the signing of the American Rescue Plan Act of 2021 into law in March, guidance around the COBRA premium assistance has been issued in the form of two sets of FAQs. The first set was issued by the Department of Labor on April 7, which we summarized for you in the May edition of this newsletter. We have updated our summary to include information from the second set of FAQs that were issued by the IRS on May 18, 2021, which provide more information around eligibility and claiming the tax credit for employers. New questions are labeled with the date they were added.
Q-1. Can we expect additional guidance to be issued?
Guidance was issued in the form of FAQs on April 7 by the Department of Labor and an additional set of FAQs were issued by the IRS on May 18, 2021. Clarifying guidance may continue to be issued as needed.
Q-2. What COBRA premium assistance is being offered?
Those qualified beneficiaries who meet the eligibility criteria will receive a full COBRA subsidy for coverage periods falling in the window between April 1, 2021, and September 30, 2021. The subsidy is not available for coverage months prior to April 1, 2021. If a qualified beneficiary is retroactively enrolling in coverage, they are unable to use the subsidy to offset back premiums prior to April 1, 2021.
It is important to note the subsidy is specific to premiums and the COBRA enrollee is responsible for any cost sharing in accordance with the terms of the plan.
This premium assistance is generally available for continuation coverage under the Federal COBRA provisions, as well as for group health insurance coverage under comparable state continuation coverage (“mini-COBRA”) laws.
Q-3. Which plans does the premium assistance apply to?
This applies to all group health plans that are sponsored by private-sector employers and employee unions subject to the COBRA rules under ERISA, state or local governments subject to the Public Health Service Act, and group health insurance required under state mini-COBRA laws. Employers who fail to satisfy these requirements may be subject to an excise tax under the Internal Revenue Code for as much as $100 per qualified beneficiary, but not more than $200 per family, for each day the taxpayer is out of compliance.
Duration of premium subsidy
Q-4. How soon must we start offering the subsidy?
The subsidy should be applied to any coverage months beginning on or after April 1, 2021.
Q-5. How long must the subsidy be made available?
The subsidy is available until the earliest of: (1) September 30, 2021, (2) the first day the qualified beneficiary becomes eligible for coverage under any group health plan (this does not include excepted benefits, a qualified small employer HRA (QSEHRA), or a health FSA), or Medicare or (3) the date following expiration of the maximum COBRA period. (Examples added 5.18.21)
Example 1: If a coverage period runs from September 19, 2021, through October 2, 2021, the subsidy applies for the entire period of coverage even though it ends after September 30, 2021.
Example 2: If a coverage period began on March 28 and ended on April 10, the subsidy would be available for the period of coverage beginning on April 11.
Eligibility for premium subsidy
Q-6. Who qualifies for the COBRA premium subsidy?
A qualified beneficiary will qualify for the subsidy if they are eligible for COBRA (for any portion of the 6-month maximum subsidy period) due to an employee’s reduction in hours (such as reduced hours due to change in a business’s hours of operations, a change from full-time to part-time status, taking of a temporary leave of absence, or an individual’s participation in a lawful labor strike, as long as the individual remains an employee at the time that hours are reduced) or involuntarily termination of employment (other than termination for gross misconduct). Those who qualify for the subsidy are referred to as Assistance Eligible Individuals (AEI).
The subsidy applies to all qualified beneficiaries who lose coverage because of involuntary termination of an employee’s employment or a reduction in hours, including the employee’s spouse or dependent children who were covered on the date of the COBRA event.
The subsidy is not available to individuals whose maximum COBRA continuation coverage period, if COBRA had been elected or not discontinued, would have ended before April 1, 2021, (generally, those with applicable qualifying events before October 1, 2019).
Q-7. Can an individual become an assistance-eligible individual (AEI) more than once? (added 5/18/21)
Yes. An individual who becomes a qualified beneficiary as the result of a reduction in hours or involuntary termination of employment, and meets the requirements to be an AEI, is treated as an AEI regardless of whether the individual was also treated as an AEI at an earlier date. For example, if they receive the subsidy for one month, become eligible for other coverage but then lose that other coverage, the individual may come back onto COBRA under the subsidy for their remaining coverage periods falling within the subsidy window.
Q- 8. Is COBRA premium assistance available to individuals who have elected and remained on COBRA or an extended period due to disability or a second qualifying event?
Yes. If the original qualifying event was a reduction in hours or an involuntary termination of employment, then the premium assistance is available for any coverage period falling within the subsidy window.
Q-9. Is the premium subsidy available for individuals who had opted to enroll in Medicaid, Marketplace, or individual health insurance coverage rather than elect COBRA?
These individuals may be eligible for premium assistance. If they qualify for and enroll in COBRA with the premium assistance, they would no longer be eligible for any premium tax credits they had been receiving for their existing coverage.
Q-10. Are all COBRA plans eligible for the premium subsidy or is this limited to only medical plans?
The subsidy will apply to group health plans, including fully insured and self-funded health plans, including medical, dental and vision plans. The premium subsidy is not available for health FSAs.
Q-11. Does the subsidy need to be offered to all qualified beneficiaries or only to those whose COBRA event was an involuntary termination of employment or reduction in hours?
The subsidy is available only to those qualified beneficiaries who are eligible for COBRA based on an involuntary termination of employment (for reasons other than gross misconduct) or a reduction in hours.
Q-12. How will we know if a qualified beneficiary is no longer available for the subsidy?
A qualified beneficiary ceases to be eligible for the subsidy if they become eligible for coverage under another group health plan (this does not include excepted benefits, a qualified small employer HRA (QSEHRA), or a health FSA), or Medicare. In such cases, the qualified beneficiary must notify the employer in writing when they become eligible for other group health plan coverage or for Medicare. An individual who does not notify the employer may face a penalty of $250 or up to 110 percent of premium assistance, whichever is greater.
Q-13. May the employer require individuals to self-certify or attest that they are eligible for COBRA continuation coverage with the subsidy and, if so, may the self-certification or attestation be used to assist the employer in substantiating its entitlement to the premium assistance credit? (added 5/18/21)
Yes. Employers may require individuals to provide a self-certification or attestation regarding their eligibility status, which may assist the employer in substantiating its entitlement to the credit. Employers are not required to obtain a self-certification or attestation; however, employers who claim the credit must retain in their records either a self-certification or attestation from the individual regarding the individual’s eligibility status, or other documentation to substantiate that the individual was eligible for the COBRA premium assistance. Should employers receive a self-certification or attestation, they should retain those copies as part of their business record.
The required notices contain a Request for Treatment as an AEI form that must be completed and returned to the COBRA administrator or plan sponsor to receive the subsidy. If Meritain Health administers your COBRA, these forms will be returned to us and you’ll receive a report at least once quarterly of all the individuals receiving subsidy assistance. We will provide copies of the forms upon request should you need them.
Q-14. If a potential AEI was eligible for other group health plan coverage before April 1, 2021, but on and after April 1, 2021, has not been permitted to enroll in that other group health plan coverage, is COBRA premium assistance available for the individual’s COBRA continuation coverage? (added 5/18/21)
Yes. COBRA premium assistance is available to a potential AEI until the individual is permitted to enroll in coverage under any other group health plan (including during a waiting period for any other plan).
Q-15. If an AEI is eligible for other disqualifying group health plan coverage or Medicare beginning on or after April 1, 2021, but does not enroll in either, is COBRA premium assistance available for the individual’s COBRA continuation coverage for periods of coverage beginning on or after the date the individual is first eligible for the other coverage? (added 5/18/21)
No. If an AEI enrolled in COBRA continuation coverage begins employment with a new employer and is eligible to enroll in the employer’s group health plan with coverage effective the first day of the next month, the AEI may decline the coverage and remain on COBRA, but premium assistance will end as of the first day of the next month.
Q-16. If retiree health coverage (that is not COBRA continuation coverage) is offered to a potential AEI, how does that offer affect eligibility for COBRA premium assistance? (added 5/18/21)
This answer depends on whether the retiree health coverage is offered under the same group health plan as the COBRA continuation coverage or under a separate group health plan. If offered under the same group health plan, the offer of the retiree health coverage has no effect on a potential AEI’s eligibility for COBRA premium assistance under the ARP. However, a potential AEI is not eligible for COBRA premium assistance if the individual is offered retiree health coverage that is not COBRA continuation coverage and is coverage under a separate group health plan than the plan under which the COBRA continuation coverage is offered.
Q-17. If an individual makes or owes COBRA premium payments for retroactive COBRA continuation coverage elected under the Emergency Relief Notices for which the payment due date has been extended, does that make the individual ineligible for premium assistance? (added 5/18/21)
No. An individual does not lose eligibility for COBRA premium assistance if they owe or make payment for premiums for months prior to April 1, 2021. Receiving the COBRA premium assistance does not impact an individual’s extended due date for premium payments under the Emergency Relief Notices.
Reduction of Hours (added 5/18/2021)
Q-18. May a qualified beneficiary whose qualifying event is a voluntary reduction in hours be a potential AEI who qualifies for COBRA premium assistance?
Yes. An employee’s reduction in hours would cause the qualified beneficiary to be a potential AEI regardless of whether the reduction in hours is voluntary or involuntary.
Q-19. Is a qualified beneficiary whose qualifying event is a furlough a potential AEI who qualifies for COBRA premium assistance?
Yes. For purposes of this guidance, the term “furlough” means a temporary loss of employment or complete reduction in hours with a reasonable expectation of return to employment or resumption of hours (for example, due to an expected business recovery of the employer) such that the employer and employee intend to maintain the employment relationship. A furlough may be a reduction in hours regardless of whether the employer initiated the furlough, or the individual participated in a furlough process similar to a window program (meaning impending terminations of employment are offered a severance arrangement to terminate employment within a specified period of time).
Q-20. Does a reduction in hours include a work stoppage as the result of a lawful strike initiated by employees or their representatives or a lockout initiated by the employer?
Yes. A reduction in hours includes a work stoppage, either as the result of a lawful strike initiated by employees or their representatives or a lockout initiated by the employer, as long as at the time the work stoppage or the lawful strike commences the employer and employee intend to maintain the employment relationship.
Understanding involuntary terminations (added 5/18/2021)
Q-21. What constitutes an involuntary termination of employment for purposes of determining if someone is a potential AEI?
An involuntary termination of employment means “a severance from employment due to the independent exercise of the unilateral authority of the employer to terminate the employment, other than due to an employee’s implicit or explicit request, where the employee was willing and able to continue performing services”. An employee-initiated termination is considered involuntary for purposes of the COBRA subsidy if it is a termination for good reason due to an employer action that resulted in a negative material change in the employment relationship for the employee.
The facts and circumstances will determine whether a termination is voluntary. For example, if an employee was willing and able to continue their employment but had knowledge that they’d be terminated and decided to resign, this is considered an involuntary termination. The FAQs also explain that if an employee resigns due to a material change in the geographic location of employment, or due to a material reduction in hours, this is an involuntary termination.
Q-22. Does an involuntary termination of employment include an employer’s action to end an individual’s employment while the individual is absent from work due to illness or disability?
Yes. If there is a reasonable expectation that the employee will return to work after the illness or disability has subsided, and the employer has terminated their employment, this is an involuntary termination.
Q-23. Does an involuntary termination include employees with impending terminations that participate in a window program that gives severance arrangements to terminate employment within a specified timeframe?
Yes. Participation in a window program is considered an involuntary termination under these requirements.
Q-24. Does an involuntary termination of employment include retirement?
Generally, a retirement is a voluntary termination of employment. However, if the facts and circumstances indicate that, absent retirement, the employer would have terminated the employee’s employment, that the employee was willing and able to continue employment, and that the employee had knowledge that the employee would be terminated absent the retirement, the retirement is an involuntary termination of employment.
Q-25. Does an involuntary termination of employment occur because the termination of employment is for “good reason” if an employee terminates employment because of concerns about workplace safety due to a health condition of the employee or a family member of the employee?
An employee’s termination of employment due to general concerns about workplace safety is not treated as an involuntary termination of employment. However, a termination of employment would be involuntary if the employee can demonstrate that the employer’s actions (or inactions) resulted in a material negative change in the employment relationship analogous to a constructive discharge. A departure due to the personal circumstances of the employee unrelated to an action or inaction of the employer, such as a health condition of the employee or a family member, inability to locate daycare, or other similar issues, generally will not rise to the level of being analogous to a constructive discharge absent the employer’s failure to either take a required action or provide a reasonable accommodation.
Q-26. Is an individual whose qualifying event is an employee-initiated termination of employment because a child is unable to attend school or because another childcare facility is closed due to the COVID-19 National Emergency a potential 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 AEI.
Q-27. Is the death of an employee an involuntary termination of employment that makes qualified beneficiaries such as the spouse and dependent children of the employee potential AEI?
The death of an employee is not a reduction in hours or an involuntary termination of employment, so a loss of coverage due to the employee’s death would not result in the spouse and dependent children of the employee being potential AEIs.
Q-28. 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 was willing either to execute a contract with terms similar to those of the expiring contract or to continue employment without a contract. However, if the parties understood at the time they entered into the expiring contract, and at all times when services were being performed, that the contract was for specified services over a set term and would not be renewed, the completion of the contract without it being renewed is not an involuntary termination of employment.
Penalties (added 5/18/2021)
Q-29. What is the amount of the penalty charged to an individual for failure to notify the employer that they are no longer an AEI?
If the individual fails to notify the group health plan, the individual may be subject to a penalty of $250 for each failure. If the individual fraudulently fails to notify the group health plan, the individual is subject to a penalty equal to the greater of $250 or 110 percent of the premium assistance improperly received after the end of eligibility for COBRA premium assistance.
Payment of the subsidy
Q-30. Who is paying for the COBRA premium subsidy?
The COBRA subsidy will be reimbursed at 100 percent by the Federal government through a quarterly employer tax credit. In the case where the subsidy is greater than the amount owed in income and payroll taxes, the group can seek a direct payment from the Treasury.
Q-31. What percentage of the COBRA premium will the individual have to pay during the premium subsidy window?
An eligible qualified beneficiary will not have to pay anything, as the premium subsidy will offset the full COBRA premium. Plans and issuers should not collect premium payments from eligible Qualified Beneficiaries and subsequently require them to seek reimbursement of the premiums for periods of coverage beginning on or after April 1, 2021. If a payment has already been received for coverage months for which the qualified beneficiary will receive the subsidy, it must be reimbursed or credited against future payments, and no further payments for the period between April 1 to September 30 should be collected.
Q-32. What if a member prepaid their COBRA premiums for months after April 1t?
Qualified beneficiaries who qualify for the premium subsidy and pre-paid COBRA premiums will be due a refund or a credit against future payments for any month the individual is eligible for the premium subsidy.
Q-33. Generally, what is the amount of the premium assistance credit for a quarter if the employer does not subsidize COBRA premium costs? (added 5/18/21)
If the employer does not subsidize COBRA premium costs for similarly situated qualified beneficiaries who are not AEIs, the credit for a quarter is the amount equal to the premiums not paid by AEIs for COBRA continuation coverage. The premium amount also includes any administrative costs otherwise allowed (e.g.,. 102 percent of the applicable premium).
Q-34. What is the amount of the premium assistance credit if the employer subsidizes the COBRA premium costs for similarly situated covered employees and qualified beneficiaries who are not AEIs? (added 5/18/21)
The amount of the credit is the premium that would have been charged to an AEI in the absence of the premium assistance and does not include any amount of subsidy that the employer would have otherwise provided. The credit is equal to the amount that the employer would have actually charged to the AEI.
Q-35. Must we notify qualified beneficiaries of their right to this subsidy?
Yes. For anyone who becomes entitled to COBRA (based on an involuntary termination of employment or a reduction in hours of employment) during the period from April 1, 2021, and September 30, 2021, any COBRA qualifying event notice provided to an eligible qualified beneficiary must include a description of the availability of the subsidy.
For anyone who became entitled to COBRA before April 1, 2021, and may be eligible for the subsidy for one or more months, groups must notify them of the availability of the subsidy by May 31, 2021. The Departments have issued model notices to assist with notification requirements. They can be found here: https://www.dol.gov/agencies/ebsa/laws-and-regulations/laws/cobra/premium-subsidy
Q-36. Do we still have to provide a notice to those qualified beneficiaries who previously elected COBRA?
Yes, those individuals must be made aware of their right to the subsidy. They can receive the same model notice described in the answer to question 32 above or a different version that meets the notice’s content requirements.
Q-37. What are the content requirements for the notices?
The DOL has released model notices that satisfy the content requirements. If you choose not to utilize the model notices, the DOL FAQs list the following information as being required:
- The forms necessary for establishing eligibility for the premium assistance
- Contact information for the plan administrator or other person maintaining relevant information in connection with the premium assistance
- A description of the additional election period (if applicable to the individual)
- A description of the requirement that the AEI notify the plan when they become eligible for coverage under another group health plan (not including excepted benefits, a qualified small employer HRA (QSEHRA), or a health FSA), or eligible for Medicare and the penalty for failing to do so
- A description of the right to receive the premium assistance and the conditions for entitlement
- If offered by the employer, a description of the option to enroll in a different coverage option available under the plan. (Note the Request for Treatment as an AEI must be returned within 60 days of receipt of the notice. For plans allowing individuals to elect medical coverage that differs from what they had at the time of their qualifying event, the election must be made within 90 days of receipt of the notice, but the 60 days still applies if they want to receive the subsidy.)
Q-38. Are there model or sample notices available now for use?
Yes. The DOL has developed model notices that are available at https://www.dol.gov/agencies/ebsa/laws-and-regulations/laws/cobra/premium-subsidy
Q-39. Must we notify qualified beneficiaries when their premium subsidy expires?
Yes. Qualified beneficiaries must receive a Notice of Expiration of Assistance written in clear and understandable language with the expiration date of the premium assistance prominently displayed. Information must be included about other coverage options that may be available. Such notice shall be provided between 45 days and 15 days prior to the expiring period. This notice is not required if the subsidy terminates because an individual becomes eligible for other coverage or Medicare.
Example: John is eligible for the full six-month premium subsidy window from April 1, 2021–September 30, 2021. John’s premium subsidy will expire on September 30, 2021, and he will be responsible for his full COBRA premium starting October 1, 2021. John will need to receive notice that his premium subsidy is expiring no earlier than August 17, 2021 (45 days prior) but no later than September 15, 2021 (15 days prior).
The Departments have issued a model notice to meet this requirement.
Q-40. It has been months since I last communicated with my previous employee. I don’t know if their address is current. What do I do?
COBRA regulations state the last known address should be used for required notices. Steps should be taken to ensure systems are up to date with the most recent known address. If you have not been provided new information, the last known address will suffice to satisfy the notice requirement.
Second chance election period
Q-41. I understand that we have to offer a special election period, what does that mean?
For those individuals who became eligible for COBRA based on an involuntary termination of employment or a reduction in hours, but who did not elect COBRA and are still within their maximum COBRA period on April 1, 2021, those individuals must be given an opportunity to now elect COBRA during a special 60-day election period that begins on the date they receive notice of their right to apply for the subsidy. The 60-day election period is not impacted by the deadline relief currently available for standard COBRA election periods and premium payment deadlines.
Q-42. How is the 60-day election period calculated?
The 60-day period is calculated from the date notification is given to the individual about their entitlement to this special election period. The 60-day election period is not impacted by the deadline relief currently available for standard COBRA election periods and premium payment deadlines.
Q-43. How soon must we notify individuals about this special election period?
Groups have until May 31, 2021, to identify and notify those individuals who are eligible for this special election. Remember, the employee has 60-days from the date they receive the notice to elect COBRA.
Q-44. Since we have to offer this special election period to all employees who were eligible for COBRA based on a reduction in hours or an involuntary termination of employment, does that mean we have to retroactively reinstate them back to the date they lost eligibility under the plan?
No, coverage does not have to be reinstated retroactively. The subsidy applies only to premiums for coverage months falling between April 1, 2021, and September 30, 2021, and eligible qualified beneficiaries are free to elect coverage for that period (or any portion that they are eligible for) whether they elect coverage for earlier months or not.
Example one: John’s employment involuntarily terminated on August 31, 2020. He was eligible to elect COBRA beginning September 1, 2020. Under the COVID deadline relief, John is still in his election period because he has not yet reached the one-year anniversary of the original deadline for his COBRA election. He has two options: 1) he may elect COBRA effective April 1, 2021, and have fully subsidized coverage to September 30, 2021, or 2) he can choose to elect retroactive coverage, but he will be responsible to pay any premiums for coverage months prior to April 1, 2021.
Example two: John’s employment involuntarily terminated on October 31, 2019. He was eligible to elect COBRA beginning November 1, 2019, but John did not elect COBRA. Had John elected COBRA, his 18-month maximum coverage period would have expired on April 30, 2021. The COVID deadline relief does not apply to John because his original COBRA election period ended before the COVID deadline relief period began so John cannot elect COBRA retroactive to his original COBRA eligibility date. However, John is eligible for the subsidy, so he can now elect COBRA for the one remaining month of his original maximum COBRA coverage period and have that one month fully subsidized. His coverage would terminate on April 30, 2021, since that is the end of his 18-month maximum coverage period.
Q-45. Does this mean the maximum coverage period for COBRA is calculated from April 1, 2021?
No, the act does not extend the period of COBRA continuation coverage beyond the original maximum period (generally 18 months from the employee’s reduction in hours or involuntary termination of employment), as measured from the date of their qualifying COBRA event. The qualified beneficiary is eligible only for their remaining COBRA period, based on the maximum period that would have applied on the date the qualified beneficiary became entitled to COBRA.
Q-46. If an employee had a reduction in hours or an involuntary termination of employment before April 1, 2021, and elected self-only COBRA continuation coverage, may a spouse or a dependent child who is a qualified beneficiary in connection with the reduction in hours or involuntary termination of employment elect COBRA continuation coverage and receive COBRA premium assistance under the ARP extended election period? (added 5/18/21)
Yes. A qualified beneficiary who does not have an election of COBRA continuation coverage in effect on April 1, 2021, but who would have been an AEI if the election were in effect, may elect COBRA continuation coverage under the ARP extended election period. A spouse or dependent child who is a beneficiary under a group health plan that covers an employee on the day before the reduction in hours or involuntary termination of employment of the employee also would have been an AEI if the spouse or dependent child had elected COBRA continuation coverage. Thus, a spouse or dependent child in this situation has a second election opportunity, notwithstanding the prior election of self-only COBRA continuation coverage by the employee.
Q-47. What if someone initially elected COBRA, but dropped it because they could not afford the premium or if coverage was terminated for failure to pay on time, are they eligible for this special election period?
Yes, those individuals must be offered the special election period; however, as explained above, this does not extend their maximum coverage period.
Q-48. Can we limit the benefit package employees would be eligible to elect under this special election period?
Yes, any eligible qualified beneficiary must be offered the same COBRA package they would have been eligible for at the time they became eligible for COBRA. However, employers are permitted (but not required) to offer the opportunity to elect a different medical plan option instead of the medical plan option the individual was enrolled in at the time of their qualifying event, provided that medical plan option is also offered to similarly situated active employees and the COBRA premium would not exceed the premium of the coverage in which the employee was enrolled on the date the qualified beneficiary’s COBRA event occurred. If an employee opts for different coverage, it cannot be an excepted benefits plan, a qualified small employer HRA (QSEHRA), or a flexible spending arrangement (FSA).
Impact to employers
Q-49. If a potential AEI elects COBRA continuation coverage during the ARP extended election period but the employer no longer offers the health plan that previously covered the individual, must the employer place that individual in the plan most similar to the prior plan, provided the employer offers other health plans? (added 5/18/21)
Yes. If an employer no longer offers the health plan that previously covered the potential AEI, the individual must be offered the opportunity to elect the plan that a similarly situated active employee would have been offered that is most similar to the previous plan that covered the individual, even if the premium for the plan is greater than the premium for the previous plan. In this case, the other coverage elected by the individual is eligible for the COBRA premium assistance, regardless of the premium for that coverage.
Q-50. If an employer is no longer subject to Federal COBRA due to a reduction in the number of employees, is the employer still required to provide the ARP extended election period to individuals who had a qualifying event that was a reduction in hours or involuntary termination of employment while the employer was subject to COBRA, and are those qualified beneficiaries potential Assistance Eligible Individuals (AEIs)? (added 5/18/21)
Yes. Whether a qualified beneficiary is eligible to elect Federal COBRA continuation coverage is determined by the employer’s status at the time of the qualifying event, and whether a qualified beneficiary is a potential AEI who may elect COBRA continuation coverage during the ARP extended election period is determined by whether the qualified beneficiary was eligible to elect COBRA continuation coverage at the time of the qualifying event.
Q-51. Do you expect my stop loss premiums to be impacted by this new law?
If your stop loss is with a Meritain Health preferred carrier, we’ve confirmed that there are currently no plans to make mid-year changes; however, the carriers reserve the right to re-rate their policies and will notify us if their position changes. If your stop loss is not with a Meritain Health preferred carrier, you should reach out to them directly to inquire about how this may impact your premiums.
Q-52. How does the act impact me as an employer if I administer my own COBRA?
If you administer COBRA on behalf of your health plan, you will have to update your Qualifying Event Notice and other plan materials to reflect the above requirements. In addition, it is recommended that you promptly begin to identify those individuals who became eligible for COBRA based on a reduction in hours or an involuntary termination of employment (other than for gross misconduct) and who may be eligible for the subsidy for one or more months so that you can send the required notices discussed above.
Q-53. How does the act impact me as an employer if Meritain Health administers COBRA on my behalf?
We have taken the necessary steps to assist you in bringing your plan into compliance with this new requirement, if Meritain Health administers COBRA on behalf of your plan. This includes adopting the government model notices and updating our systems to support enrollment in the subsidy. If you have responded timely to our request that you confirm which individuals on your term reports are in scope, your notices were postmarked on or before the May 31 deadline.
Q-54. How should plan sponsors prepare for compliance with the act?
- Identify those individuals who need to receive the required notices as described above.
- Identify how you will handle those qualified beneficiaries who are due a refund or credit for premium payments already submitted for April 1, 2021 or after.
- Plan amendments are not needed.
- Those who do not utilize COBRA administrative services through Meritain Health will need to coordinate with their vendor.
- Consult with qualified legal counsel for advice on issues, as needed.
Claiming the tax credit for employers (added 5/18/2021)
Q-55. Who is eligible for the premium assistance credit?
The premium payee for continuation coverage is eligible for the credit who is defined as:
(1) The multi-employer plan, in the case of a group health plan that is a multi-employer plan.
(2) The common law employer maintaining the plan, in the case of a group health plan, other than a multiemployer plan, that is
(a) Subject to Federal COBRA, or
(b) Under which some or all of the coverage is not provided by insurance (that is, a plan that is self-funded, in whole or in part).
(3) The insurer providing the coverage, in the case of any other group health plan not described in (1) or (2) (generally, fully insured coverage subject to state continuation coverage requirements).
Q-56. May a governmental entity be a premium payee, and therefore eligible for the premium assistance credit?
Yes. A premium payee may include the government of any state or political subdivision thereof, any Indian tribal government, any agency or instrumentality of any state, political subdivision, or government of the United States.
Q-57. When does the premium payee become entitled to the premium assistance credit?
Once the premium payee has received the AEI’s election form and application for treatment as an AEI, they are entitled to the credit for premiums not paid by the AEI for any periods of coverage that fall between April 1 and September 30, 2021.
Q-58. How does a premium payee claim the premium assistance credit?
A premium payee claims the credit by reporting the credit (both the nonrefundable and refundable portions of the credit, as applicable) and the number of individuals receiving COBRA premium assistance on the designated lines of its federal employment tax return(s), usually Form 941, Employer’s Quarterly Federal Tax Return.
In anticipation of receiving the credit to which it is entitled, the premium payee may (1) reduce the deposits of federal employment taxes, including withheld taxes, that it would otherwise be required to deposit, up to the amount of the anticipated credit, and (2) request an advance of the amount of the anticipated credit that exceeds the federal employment tax deposits available for reduction by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19.
Q-59. When may a premium payee reduce its deposits of federal employment taxes and, if applicable, file Form 7200 to request an advance of the anticipated premium assistance credit that exceeds the federal employment tax deposits available for reduction for a quarter?
A premium payee may reduce its deposits of federal employment taxes in anticipation of the credit to which the premium payee has become entitled with regard to a period of coverage as of the date the premium payee is entitled to the credit. If the anticipated credit exceeds the federal employment tax deposits available for reduction, the premium payee may file Form 7200 to request an advance payment of the credit. The Form 7200 may be filed after the end of the payroll period in which the premium payee became entitled to the credit.
Deposits may not be reduced, and advances may not be requested, for a credit for a period of coverage that has not begun. Form 7200 must be filed before the earlier of (1) the day the employment tax return for the quarter in which the premium payee is entitled to the credit is filed, or (2) the last day of the month following that quarter. The premium payee entitled to the credit should also report any advance payments received in anticipation of the credit for the quarter on the employment tax return.
Q-60. If an AEI receiving COBRA premium assistance fails to provide notice of the individual’s eligibility for coverage under any other disqualifying group health plan or Medicare and continues receiving COBRA premium assistance, is the premium payee required to refund to the IRS the premium assistance credit arising from the period after the individual’s eligibility for COBRA premium assistance ended due to eligibility for the other coverage?
No. If an AEI fails to provide notice that the individual is no longer eligible for the COBRA premium assistance due to eligibility for other disqualifying group health plan coverage or Medicare, the premium payee is still entitled to the credit received for that period of ineligibility, unless the premium payee knew of the individual’s eligibility for the other coverage. If the premium payee learns that the individual is eligible for other coverage (and thus of the individual’s ineligibility for COBRA premium assistance), the premium payee is not entitled to the credit from that point forward.
Q-61. Is the premium assistance credit included in gross income?
Yes. The gross income of any premium payee allowed a credit is increased by the amount of the credit for the taxable year which includes the last day of any quarter with respect to which the credit is allowed.
Please contact your Meritain Health representative if you have any questions.
This compliance alert is being provided as an informational tool. It is recommended that plans consult with their own experts or counsel to review all applicable federal and state legal requirements that may apply to their group health plan. By providing this publication and any attachments, Meritain Health is not exercising discretionary authority over the plan and is not assuming a plan fiduciary role, nor is Meritain Health providing legal advice.