One of the many provisions signed into law with the American Rescue Plan Act of 2021 was a new COBRA premium subsidy that pays for 100% of the applicable premiums for eligible individuals. To comply with the law, businesses will face a few challenges. There are several factors that will come into play for many businesses to consider. Actions items to start planning now are to
- Identify Assistance Eligible Individuals (AEIs)
- Determine plan notice requirements
- Pull payroll records to determine if termination was voluntary or involuntary
- Reach out to vendor or plan partners that currently assist your business with enrollment eligibility, payroll, and insurance.
In order to claim the credit or refund, you will need to determine the entity responsible for covering the COBRA premiums upfront. This is all contingent on the type of plan and how the plan is funded.
- self-insured plans the employer is the responsible entity
- fully insured plans the insurer is the responsible entity
- other plans the entity to whom the premium is due is the responsible entity
There are still many outstanding questions as to how this should work in certain scenarios, such as where COBRA is handled by a third-party administrator. However, the responsible entity will be eligible to claim a credit against taxes otherwise imposed under Internal Revenue Code Section 3111(b) (the Medicare tax). This credit is claimed on the responsible entity’s quarterly payroll tax filing. If the COBRA premium costs that the responsible entity covered upfront exceeds its liability under Code Section 3111(b), it can request an additional refund. The IRS has not yet outlined how this refund will be processed, but additional guidance is expected.
The covered period for the subsidy is April 1, 2021 to September 30, 2021. AEIs are determined eligible if COBRA was due to the covered employee’s involuntary termination of employment or reduction of hours, and the individual must elect COBRA. Individuals terminated for gross misconduct or anything other than involuntary employment or a reduction in hours do not qualify. AEIs must also have been eligible during the covered period of April 1, 2021-September 30, 2021. If they were eligible during this time but previously declined COBRA, they are still eligible and can opt back in with a “second chance” election to COBRA. The special elections period begins on April 1st and end 60 days after notice of the election period is provided. Administrators must provide notice within 60 days of April 1, 2021.
More information regarding COBRA laws can be found under the US Department of Labor at https://www.dol.gov/general/topic/health-plans/cobra .