The new federal law (Section 9501 of the American Rescue Plan Act of 2021 – ARP Act, PL 117-2) provides for a temporary and comprehensive subsidy of certain premiums that individuals would have to pay for COBRA coverage following reduced hours or involuntary termination. Of employment. On May 18, 2021, the IRS issued guidance regarding the many unanswered questions of this new law, which subsidizes the cost of COBRA for the period from April 1, 2021 to September 30, 2021. Under the new law, the premiums COBRA are subsidized with tax credits for employers, multi-employer and insurers who maintain group health plans.
If a person did not have a COBRA election in place on April 1, 2021, they can now elect a subsidized COBRA for a period ending September 20, 2021, provided they are given proper notification.
Employers are required to provide notice to COBRA eligible employees and former employees by May 31, 2021 regarding this grant. The United States Department of Labor has a model notice to address the regular COBRA elections as well as those eligible for the grant.
Who is eligible for the subsidized COBRA?
An employee, his or her spouse and dependent children are eligible for the subsidized COBRA program if:
(1) the employee lost health coverage because working hours were reduced or because the employee was involuntarily terminated and is not eligible for Medicare or any other group health plan;
(2) the person is eligible for COBRA for part or all of the period beginning from April 1, 2021 to September 30, 2021; and
(3) the eligible person has timely chosen COBRA continuation coverage.
How is the grant claimed?
The employer can claim a tax credit to subsidize COBRA costs by reducing its liability on Form 941, the employer’s quarterly federal tax return, for the months for which the subsidy was applied. If the cost of the premiums exceeds the amount of tax due on Form 941, the employer can claim a refund on Form 7200.
The employer can only claim a subsidy for the part of the premium that the employee is required to pay (up to 102% of the premium). Any amount of the COBRA premium that the employer pays for the employee is not credited. Employers who enter into severance agreements may consider designing these agreements to take advantage of these tax credits.
What are the documentation requirements?
To obtain the COBRA tax credit, an employer must require employees and their family members to certify in writing that they meet the requirements of the subsidized COBRA and to keep a record of this certification.
What is the COBRA grant period?
The subsidized period begins on or after the date of the eligible event, if this event occurs on or after April 1, 2021, and before September 30, 2021. The subsidized premiums end on September 30, 2021.
When can qualified people choose the subsidized COBRA?
Any former employee who was involuntarily fired or whose hours were reduced before April 1, 2021 and who did not elect COBRA but whose election period is still open can elect COBRA subsidized.
Any former employee who was involuntarily terminated or whose hours were reduced on or after April 1, 2021 and before September 30, 2021 may elect a subsidized COBRA within 60 days of receiving notice from the employer. The employer must notify the employee of the extension of the election period to elect COBRA before May 31, 2021. The subsidized COBRA may apply to any medical, visual or dental or HRA plan in which the employee has participated before. termination of employment.
If the former employee refuses or does not pay for COBRA during the unsubsidized period, there is no COBRA coverage during this period, but the employee can still get the subsidy between April and September if the election is made in timely and that the COBRA period covers the grant period.
If the person makes the COBRA election after September 30, 2021, but within the applicable 60-day period, then they are entitled to COBRA premium assistance until September 30, 2021 or the expiry date of the continuation coverage. COBRA.
During what period are the premiums subsidized?
Subsidized COBRA begins with the last of the first period of coverage beginning on or after April 1, the date of the qualifying event, or the date the qualifying beneficiary elects to begin COBRA Continuing Coverage.
The subsidized COBRA period ends on the earliest of the following dates (1) the first day the eligible person is eligible for another group health plan or Medicare, (2) the date the COBRA period otherwise ends, or (3) September 30, 2021.
What if the COBRA period continues after September 30, 2021?
Once the subsidized COBRA period ends on September 30, 2021, a COBRA beneficiary can continue coverage by paying premiums in a timely manner.
What if an individual’s qualification for COBRA ends before September 30, 2021?
Former employees and their family members who qualified for the subsidized COBRA but who subsequently become disqualified (because, for example, they are covered by new insurance) must report this to the former employer. Failure to do so exposes the former employee to a federal fine.
Which elections apply to families?
If an employee was involuntarily fired before April 1, 2020 and chose COBRA for themselves only, the spouse and dependent children have the option of choosing COBRA subsidized as of April 1, 2020.
What medical plans are authorized COBRA subsidized?
A qualified employee can elect COBRA under the employer’s group health, vision and dental plans and be eligible for the grant. In addition, subsidized COBRA elections can be done for Health Reimbursement Accounts (HRA).
How does the subsidized COBRA apply to health reimbursement accounts (HRA)?
If COBRA is elected for an HRA, the individual will have access to the same level of reimbursement that was available immediately prior to the involuntary termination (or reduction in hours that caused loss of health insurance). The HRA benefit is the amount initially available for the year and reimbursements for expenses incurred before the eligible event, less the amount of any reimbursement made after the eligible event.
How does the election period work?
A Qualified Person may elect COBRA Subsidized Retroactively on Loss of Coverage, if eligible, within 60 days of receipt of notice of election period extension. If the eligible beneficiary chooses retroactive COBRA continuation coverage, they may be required to pay COBRA premiums for periods of coverage beginning before April 1, 2021. The eligible person may also choose separately subsidized COBRA coverage for the April period. to September. No coverage is offered during the months leading up to April 1, 2021, if the premium for that month is not paid.
When must employers provide COBRA’s notice of choice for the grant?
Notice of election period extension must be provided no later than May 31, 2021 (60 days after April 1, 2021). A person who receives the notice must choose COBRA continuation coverage no later than 60 days after the notice is provided in order to receive COBRA premium assistance. A person who receives the notice must elect COBRA continuation coverage no later than 60 days after notification of the notice in order to receive COBRA premium assistance.