Some Family Members May Not Be Eligible for the ARPA COBRA Premium Subsidy
The American Rescue Plan Act of 2021 (“ARPA”) includes a 100% COBRA premium subsidy for “assistance eligible individuals,” for periods of coverage occurring between April 1, 2021 and September 30, 2021, as described in earlier blog posts. An “assistance eligible individual” is any COBRA “qualified beneficiary” who loses group health coverage on account of a covered employee’s reduction in hours of employment or involuntary termination of employment. However, the subsidy is not available if the individual is eligible for other group health coverage or Medicare.
In general, COBRA’s definition of a “qualified beneficiary” includes only a covered employee and his or her spouse and dependent children who were covered under the health plan on the day before the COBRA qualifying event, as well as children born to or adopted by the employee during a period of COBRA coverage. Thus, other individuals who are receiving continued health coverage are not eligible for the ARPA premium subsidy. For example, some group health plans offer “COBRA-like” continuation coverage to an employee’s covered domestic partner, but domestic partners are not qualified beneficiaries under COBRA’s definition. In addition, if a former employee gets married while receiving COBRA coverage, the employee may enroll his or her new spouse in COBRA coverage in accordance with HIPAA’s special enrollment rules, but the spouse still is not a “qualified beneficiary” for COBRA purposes, because the spouse was not covered by the plan on the day before the employee’s qualifying event.
If a former employee who is an assistance eligible individual elects COBRA coverage that includes a family member who is not a qualified beneficiary (e.g., a domestic partner or a new spouse to whom the employee was not married at the time of the qualifying event), how much of the premium is not subsidized? And how much is the payroll tax credit to which the employer (or multiemployer plan or insurer) is entitled?
The IRS has not yet issued guidance on the ARPA premium subsidy. However, it may be instructive to review the guidance issued in 2009 when Congress enacted a similar COBRA subsidy as part of the American Recovery and Reinvestment Act (ARRA). Although there is no assurance that the IRS will reach the same conclusions under ARPA, it may be helpful from a planning perspective to understand how this issue was previously addressed. CAUTION: The following analysis is based on the 2009 ARRA guidance and should not be relied upon without further guidance from the government.
In connection with the 2009 ARRA COBRA premium subsidy (which was a 65% government subsidy), the IRS took an incremental approach when determining the amount eligible for the subsidy (and payroll tax credit). In other words, if the cost of covering a non-qualified beneficiary did not add to the cost of covering the eligible individuals, then the COBRA premium for the non-qualified beneficiary is zero for purposes of the subsidy, and the entire premium was eligible for the subsidy. If the cost of covering a non-qualified beneficiary added to the cost of coverage, then the incremental cost to cover the non-qualified beneficiary was not eligible for the COBRA premium subsidy.
Example 1: Susan, an assistance eligible individual, elects COBRA coverage due to her involuntary termination from employment. She elects coverage for herself and all of her family members (who were covered under the plan on the day before the qualifying event), which includes her two dependent children and her domestic partner. Susan and her family members are not eligible for other group health coverage or Medicare.
Under the terms of the plan, COBRA coverage for an employee plus-two-or-more-dependents costs $800 per month. Therefore, the additional cost to cover Susan’s domestic partner is $0 per month. As a result, Susan would be entitled to the ARPA COBRA premium subsidy for the full $800 per month, and her former employer may claim the payroll tax credit for the full $800 per month.
Example 2: Same facts as Example 1, except that Susan has only one child. Although Susan still would be required to pay $800 per month for COBRA coverage for herself and two or more dependents, the COBRA premium is only $600 per month for self-plus-one-dependent. Accordingly, the incremental cost of covering her domestic partner is $200 per month. Therefore, Susan would be entitled to the ARPA subsidy in the amount of $600 per month (and must pay $200 per month for COBRA coverage for her domestic partner). The employer could claim the payroll tax credit for only $600 per month for the coverage for assistance eligible individuals.
This is just one of many questions that arise under the ARPA COBRA subsidy. We expect the government agencies to issue guidance soon. Until then, the guidance issued in connection with the 2009 ARRA premium subsidy may be instructive as plan sponsors get ready to administer the ARPA subsidy.