October 20, 2021

Volume XI, Number 293

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October 19, 2021

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IRS Provides Clarity on ARPA COBRA Subsidy Impact on State “Mini-COBRA” Plans

In our most recent summary of IRS Notice 2021-31, we noted the Internal Revenue Service provided much-needed clarity to looming compliance challenges as employers, insurers, and others race to implement the applicable COBRA premium subsidy provisions of the American Rescue Plan Act of 2021 (ARPA).  While there are many other important clarifications made by the Notice, the substance of this alert focuses mainly on issues related to employers subject to state health continuation coverage laws, otherwise referred to in the guidance as “State mini-COBRA” requirements.

State continuation coverage requirements are not “COBRA” requirements per se, meaning they are not included as part of the Consolidated Omnibus Budget Reconciliation Act of 1985 (otherwise known as “federal COBRA”).  State continuation coverage generally only applies when employers have less than the 20 employee minimum threshold required for federal COBRA to apply or provide coverage for a period exceeding the maximum coverage period provided for under federal COBRA.  Nonetheless, ARPA included “comparable state continuation coverage” within the definition of “COBRA continuation coverage” that is subject to subsidy requirements under ARPA Section 9501.  Until issuing the most recent IRS Notice, there had been some ambiguity about what state continuation coverage programs would be subject to ARPA’s subsidy requirements, or when they were “comparable” to federal COBRA for subsidy eligibility purposes.

Following the Q&As provided in Notice 2021-31, we now know:

  • Generally, the criteria to be an “assistance eligible individual” for ARPA COBRA subsidy eligibility purposes applies equally to plans regardless of whether they are subject to federal COBRA or State mini-COBRA —in both cases, an individual must have previously qualified for federal COBRA or comparable state continuation coverage based on an involuntary termination or reduction in hours and not be eligible for other group coverage or Medicare.

  • Q/A-61 clarifies that the state continuation coverage need not be equal to or exceed the federal COBRA mandates to be “comparable”. The period of state continuation coverage can be significantly less than the maximum federal COBRA period (the example uses a period of just 6 months), and the underlying coverage can allow for coverage for individuals who differ from those entitled to coverage under federal COBRA.

  • State continuation coverage that exceeds the federal COBRA coverage period can still qualify for the ARPA subsidy if the individual was previously enrolled and became eligible for continuation coverage due to an involuntary termination or a reduction in hours (Q/A-17). This is true even in states like New York and Connecticut that provide for state continuation coverage after federal COBRA coverage has been exhausted.

  • Unlike federal COBRA, however, unless the applicable state provides its own extended enrollment opportunity, an individual who previously declined to enroll in State mini-COBRA coverage does not have an extended election opportunity to enroll in COBRA continuation coverage under ARPA, even if they otherwise would qualify as an assistance eligible individual (Q/A-52). The subsidy, therefore, is generally only available for individuals who have either already elected and are paying for state continuation coverage or, who are newly eligible during the ARPA COBRA subsidy period.

  • Employers who voluntarily offer health continuation coverage not mandated under federal COBRA or a covered state continuation plan do not have to provide ARPA COBRA subsidized coverage (Q/A-15). Neither are those employers allowed to claim the ARPA subsidy associated tax credit.  Such voluntary extensions of coverage are common for domestic partners and children of domestic partners who are not considered qualified beneficiaries under federal COBRA or other State mini-COBRA requirements.

  • Although State mini-COBRA requirements may allow for coverage of individuals who are not considered qualified beneficiaries under federal COBRA (e.g., domestic partners and children of domestic partners who are not qualifying dependents of the employee under current IRS definitions), such individuals can still be enrolled in state continuation coverage but would not be eligible for subsidies for any portion of the monthly COBRA premium attributable to that individual (Q/A-19). Correspondingly, the “premium payee” who is eligible to receive the tax credit cannot claim a credit for the portion of the premium attributable to the individual who is not considered a qualifying beneficiary under federal law (Q/A-67).

  • An insurer who provides fully insured health plan coverage to employers subject to State mini-COBRA rules is the “premium payee” who must offer subsidized COBRA coverage during the period from April 1, 2021, through September 30, 2021, and the entity entitled to the tax credit for providing the subsidized coverage. This is true even if the employer is required by the insurer to make monthly premium payments to the insurer during the ARPA COBRA subsidy period.  (Q/A-72(3) and Q/A-62).

While insurance carriers likely will be providing more clarity on their coverage requirements and subsidy eligibility to all affected individuals following these most recent updates from the IRS, employers need to understand how ARPA’s requirements apply to their specific plan and be prepared to respond to questions from individuals.  

Jackson Lewis P.C. © 2021National Law Review, Volume XI, Number 144
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About this Author

 Joy M. Napier-Joyce, Employment Benefits Attorney, Jackson Lewis Law Firm, ERISA
Office Managing Principal

Joy M. Napier-Joyce is the Office Managing Principal of the Baltimore, Maryland, office of Jackson Lewis P.C. She also leads the firm’s Employee Benefits Practice Group.

Ms. Napier-Joyce counsels clients in a broad range of benefit matters, including general compliance and administration of qualified retirement plans under ERISA and the Internal Revenue Code. She also assists clients with welfare plan issues involving cafeteria plans, health plans, flexible spending accounts, group insurance products, COBRA and HIPAA. Ms....

410-415-2000
Brian M. Johnston, Jackson Lewis Law Firm, Overland Park, Labor and Employment Law Attorney
Principal

Brian M. Johnston is a Principal in the Overland Park and Kansas City offices of Jackson Lewis P.C. He has more than 26 years of dedicated employee benefits experience representing public and private businesses, government entities, third party administrators, and other insurance and retirement service providers on a variety of employee benefit matters. 

Mr. Johnston advises employers and plan sponsors in the implementation and administration of health and welfare plans, including self-funded health benefit plans and other...

913-981-1018
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