As companies of all types and sizes continue to deal with the potential legal implications of the COVID-19 pandemic for their businesses, Jackson Walker provides insights and resources on the COVID-19 Legal Resources & Insights site.
The American Rescue Plan Act’s (ARP) premium assistance may seem like a reincarnation of the American Recovery and Reinvestment Act of 2009 (ARRA) and its COBRA subsidy, but there are significant differences. To understand ARP’s premium assistance, one must have a sound understanding of the previous deadline extensions issued during the COVID-19 pandemic and how those impact notice deadlines, election deadlines, and special enrollment period deadlines. It is also helpful to remember the existing regulations under the Internal Revenue Code of 1986 (the “Code”), as amended, and the Employee Retirement Income Security Act of 1974 (ERISA), as ARP’s COBRA premium assistance was not written on a blank slate and is another layer on the evolution of COBRA continuation coverage law. This reminder lays the foundation for understanding some of the examples in the relief guidance.
The Internal Revenue Service recently issued Notice 2021-31 (the “Notice”) providing additional guidance on ARP’s COBRA premium assistance. While ARP’s premium assistance applies to group health plans subject to COBRA, state mini-COBRA, and the Federal Employees Health Benefits (FEHB) Program, this article only addresses group health plans subject to COBRA under the federal COBRA. Employers with group health plans should note key clarifications and how the Notice explains the interaction of a number of key ARP Premium Assistance requirements with the extensions and existing COBRA guidance.
Top Ten Takeaways From the Notice
1. Eligibility for Dependents and Spouses
An assistance eligible individual who is eligible for ARP’s premium assistance includes an employee who either had a reduction in hours or was “involuntarily terminated” (please note all references to involuntarily termination in this article do not include anyone who was terminated for “gross misconduct” under COBRA). Only dependents and spouses who first became eligible for COBRA coverage by reason of the employee’s reduction in hours or involuntary termination are eligible for the ARP premium assistance, provided they are not eligible for other group health plan coverage or Medicare. It is important to analyze whether a dependent or spouse is eligible for ARP premium assistance separately on an individual-by-individual basis based on the first qualifying event making them eligible for COBRA continuation coverage.
2. Definition of Assistance Eligible Individuals
The Notice tackles the difficult question of whether an individual is an assistance eligible individual by clarifying (1) that an employee can voluntarily reduce their hours of employment to trigger eligibility for COBRA continuation coverage and the ARP premium assistance, and (2) that an employee faced with a window program to retire early may still be involuntarily terminated if the employee believes they will be part of a future layoff if a sufficient number of individuals do not take the early retirement package. Such an early retirement package must satisfy other requirements for it to be an involuntary termination.
Whether an individual is involuntarily terminated for the ARP premium assistance is a facts and circumstances determination. An employee terminated for absence from work is an involuntary termination. Retirement is not generally thought of as an involuntary termination, but facts and circumstances can treat the retirement as an involuntary termination if the individual was willing to continue employment, but had knowledge they would be terminated if they did not retire. If an employee quits because a child is unable to attend school or the child-care facility is closed due to the COVID-19 pandemic, as a general rule, that is not an involuntary termination, but if the employer and employee intend to maintain the employment relationship, the employee’s reduction in hours could make the employee an assistance eligible individual.
It is important to note that an employee’s death is not an involuntary termination under the Notice, and such employee’s spouse and dependents would not be assistance eligible individuals. Non-renewals of a contract is generally considered to be an involuntary termination if the employee was willing and able to execute a new contract with the employer.
3. Electing COBRA Coverage and ARP Premium Assistance
If a person is eligible to elect COBRA coverage and elect the ARP premium assistance in separate elections the individual may need to understand multiple applicable deadlines and notice requirements. There may be multiple deadlines for Notices and election forms for an employee’s options and obligations to notify the plan administrator. Plan administrators will need to understand the respective deadlines that apply to each individual (including the impact of the previous deadline extensions for the pandemic, the ARP premium assistance deadlines, and other extended deadlines), and different ways elections can be made so they will be able to communicate the options to participants and so that they can administer the COBRA and ARP premium assistance correctly. ARP premium assistance can be elected from and after April 1, 2021, or the applicable qualifying event if later, and it can be elected prospectively after receipt of the notice or retroactively to the individual’s first eligibility for ARP premium assistance.
4. Eligibility for Another Group Health Plan or Medicare
Before deciding a person is eligible for another group health plan coverage or Medicare that potentially cuts off their status as eligible for ARP premium assistance, it is not mere eligibility to enter the plan’s waiting period, but eligibility to enter the plan’s benefits after the expiration of any waiting period. One must carefully consider the pandemic-related extensions on special enrollment periods and COBRA coverage elections in deciding if the individual is eligible for other group health plan coverage or Medicare. Eligibility for another group health plan or eligibility to enroll in such plan or Medicare disqualifies an individual from premium assistance, even though prior coverage does not disqualify an individual from electing traditional COBRA coverage. A “good reason” termination may qualify as an involuntary termination.
5. ARP Premium Assistance Coverage Period
ARP premium assistance begins on or after April 1, 2021, or such later date which occurs prior to September 30, 2021. Special rules address when pay periods for coverage do not align with the calendar months. An assistance eligible individual may elect to waive any COBRA continuation for a period and may elect COBRA coverage for only the prospective periods of ARP premium assistance.
6. Family COBRA Coverage
If the COBRA premium covers a family group that includes some persons who are assistance eligible individuals and some who are not, for example, a dependent ages out of the plan on January 1, 2021, which is the same date the employee loses coverage due to a reduction in hours. The employee elects family COBRA coverage covering the full family, but the dependent who aged out lost coverage first for aging out in the prior year. If the premium costs for the entire group does not exceed the premium costs for the assistance eligible individuals all combined, then the premium or the dependent who aged out who was not assistance eligible is zero.
7. Payment Requirements
The payment requirements for coverage for periods prior to April 1, 2021, are subject to the pandemic-related extensions made above. Failure to make payments on COBRA coverage elected prior to April 1, 2021, or owing premiums for such periods will not disqualify an individual from being an assistance eligible individual eligible to receive ARP premium assistance. If an assistance eligible individual fails to pay his COBRA continuation coverage premium, this does not make him ineligible for ARP premium assistance.
8. Self-Attestation of Assistance Eligible Individuals
While an employer can rely on an individual’s self-attestation that they are an assistance eligible individual, be careful in how the form is drafted so that it is not also an attestation that might apply for other purposes indicating the individual was involuntarily terminated for all purposes. An employer may rely on an individual’s attestation that they are an assistance eligible individual for purposes of filing the applicable tax return to claim the payroll tax credit for the ARP premium assistance. New Form 7200 and instructions to facilitate an employer’s one rout to claiming the credit were released last week and should be consulted for claiming the credit for providing ARP premium assistance. If an employer relies on self-attestation, the employer must maintain copies of such attestations to support their claim for the tax credit for the ARP premium assistance.
9. Health Reimbursement Accounts
The Notice clarifies that the ARP premium assistance is for medical, dental, and vision, but not health flexible spending accounts. Health reimbursement accounts need to be analyzed to determine whether such coverage is supported by the ARP premium assistance.
10. Premium Payees: Who Can Claim the Credit?
The premium payee is eligible for the credit related to the ARP premium assistance. For a single employer plan, the common law employer maintaining the plan that is subject to federal COBRA is the party eligible to claim the credit. For a multiemployer plan, it is the multiemployer plan that can claim the credit. The government of any state or political subdivision that pays the premium is also eligible to claim the credit.
Employers should carefully review the ARP premium assistance notice forms to determine if they correctly communicate the election options and election deadlines under ARP and the individual’s obligations to notify the employer of coverage terminating the individual’s eligibility for ARP premium assistance. Employers will want to review whether any persons were omitted from their ARP premium assistance notices, considering the broader definitions of what constitutes an involuntary termination and what can be considered a reduction in hours. Employers should review the administrative process regarding adjudicating elections of requests for ARP premium assistance to verify it considers the guidance in Notice 2021-31 and that it preserves the supporting documents for the Employer to justify its claim of the tax credit. Employers will also want to verify that any appeals for requests for ARP premium assistance consider the new guidelines and the various extended deadlines and their impact on an individual’s eligibility.
 EBSA Disaster Relief Notice 2020-01 and EBSA Disaster Relief Notice 2021-01.
Additional Insights on the American Rescue Plan Act:
- COBRA Subsidy Forms and Guidance Issued »
- Fast Takes Podcast: How the American Rescue Plan Act Affects COBRA Health Coverage »
- American Rescue Plan Act and the COBRA Subsidy – Déjà Vu All Over Again »
- American Rescue Plan Act and Changes to Dependent Care »
- Multiemployer Pension Plan Changes in the American Rescue Plan Act »
- JW Coronavirus Insights & Resources microsite »
- COVID-19 & Your Business: Frequent Questions »
- JW Fast Takes Podcasts & Webinars »
- Sign Up for JW eAlerts »
Please note: This article and any resources presented on the JW Coronavirus Insights & Resources site are for informational purposes only, do not constitute legal or medical advice, and are not a substitute for legal advice from qualified counsel. The laws of other states and nations may be entirely different from what is described. Your use of these materials does not create an attorney-client relationship between you and Jackson Walker. The facts and results of each case will vary, and no particular result can be guaranteed.