The American Rescue Plan Act of 2021 (ARPA) provides a temporary 100% reduction in the premium that eligible individuals would have been required to pay for COBRA and comparable state law health insurance continuation coverage for qualifying periods beginning on April 1, 2021, through September 30, 2021.
Entities who maintain group health plans, such as employers and multi-employer plans will receive a corresponding tax credit provided under the new law. The premium reduction and credit are also available for continuation coverage given for such circumstances under comparable State legislation, which is frequently referred to as "mini-COBRA."
The Internal Revenue Service (IRS) has issued updated guidance through IRS Notice 2021-31 for employers about this temporary 100% reduction in the premium. Below is a summary of this guidance, along with additional helpful information and guidance for claiming credits and recordkeeping.
IRS Notice 2021-31 includes helpful information for employers, plan administrators, and health insurers regarding the new credit available to them for providing continuation health coverage to eligible individuals.
The following information is clarified in the Notice:
- Calculating the credit.
- Individual eligibility.
- The premium assistance period.
- Additional vital information to help employers, plan administrators, and insurers fully understand the credit.
The Notice also includes a Questions and Answers section which addresses many of the issues that have emerged in relation to COBRA premium assistance offered under ARPA for COBRA continuation coverage. The questions and answers are generally applicable to COBRA continuation coverage requirements under ARPA, including both Federal COBRA and similar State mini-COBRA requirements.
To read the information provided in this 41-page Notice, click here.
The person to whom premiums would have been payable, also referred to as the “premium payee,” is entitled to a refundable and advanceable credit equal to the premiums that would have been charged to eligible individuals in the absence of premium assistance plus certain administrative costs.
COBRA premium assistance credit amounts are first applied against the employer portion of Medicare tax, reduced by applicable emergency paid sick leave, extended family and medical leave, and employee retention credit amounts, and can subsequently be applied against other employment taxes.
For additional information on the ARPA’s COBRA Premium Assistance Provisions, click here to read our March 19 publication to PrimePay’s blog titled, “Effective April 1, 2021: American Rescue Plan Act of 2021 (ARPA) COBRA Premium Assistance Provisions.”
Please find claiming credits and recordkeeping guidance below.
Who is eligible for this COBRA premium assistance?
An Assistance Eligible Individual (AEI) is a Qualified Beneficiary who is eligible for and elected continuation coverage by reason of an Involuntary Termination or Reduction in Hours qualifying event.
The IRS defines involuntary termination in Q&A-24 through 34 of Notice 2021-31.
As noted by the IRS, “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 the employee’s implicit or explicit request, where the employee was willing and able to continue performing services.”
To read the additional guidance on involuntary termination provided in the Notice, click here.
Who qualifies as a premium payee?
Generally, entities who maintain group health plans, such as employers and multi-employer plans, fall under the category of a premium payee.
How do premium payees claim the premium assistance credit?
COBRA premium assistance credit amounts and the number of individuals receiving COBRA premium assistance are reported on Form 941, Employer’s Quarterly Tax Return.
Am I required to keep a record of an individual’s attestation?
Employers claiming the COBRA premium assistance credit are required to retain in their records a self-certification or attestation from the individual receiving premium assistance regarding the individual’s eligibility status or other documentation that substantiates that the individual receiving premium assistance was eligible.
How PrimePay can help.
The premium assistance available under the ARPA is complex and brings new administrative burdens. PrimePay is actively developing solutions to assist our COBRA and State Continuation clients.
For current PrimePay clients, PrimePay has sent a separate communication with additional details. We recommend that you contact us prior to the end of the quarter for which you are planning to claim the COBRA credit.
This blog article is the third of a series.
In case you missed it, click the following links to read part one and part two of this blog series:
- COBRA Series Part 1: A Quick Overview of Required Notices
- COBRA Series Part 2: The Top COBRA Compliance Mistakes Employers Make
Stay tuned for part four of our COBRA series where we will cover State Continuation, also commonly referred to as “Mini-COBRA.”
Want to learn more about compliance topics relevant to you? Subscribe to our blog now!
Enter your email below to receive updates every week.
PrimePay’s COBRA solution.
PrimePay provides administration of all COBRA qualified plans. That means you can avoid costly penalties and excise taxes ($100 or more a day per violation) from COBRA audits. Fill out the form below to get in contact with a PrimePay representative:
Disclaimer: Please note that this is not all-inclusive. Our guidance is designed only to give general information on the issues actually covered. It is not intended to be a comprehensive summary of all laws which may be applicable to your situation, treat exhaustively the subjects covered, provide legal advice, or render a legal opinion. Consult your own legal advisor regarding the specific application of the information to your own plan.