Better Late Than Never: IRS Issues Guidance Clarifying COBRA Premium Subsidy Rules

Many employers have been grappling with the ramifications of the American Rescue Plan Act (“ARPA”) since it was enacted earlier this year. Among other provisions, ARPA provided a temporary subsidy for certain insurance premiums under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”).

We previously summarized this relief in the following SW Benefits Updates: “Help Is on the Way – Important Changes to COBRA under the American Rescue Plan Act,” “DOL Clarifies Key Provisions, Issues Model Notices for COBRA Relief under ARPA,” and “Ironing Out the Wrinkles – IRS Answers 86 Questions about COBRA Relief under the American Rescue Plan Act.”

As the premium subsidy period comes to an end, the IRS issued Notice 2021-46 to address a handful of trailing issues. In particular:

• The Notice confirms that assistance is available for assistance eligible individuals (“AEIs”) whose 18-month COBRA continuation coverage period expired but who are entitled to elect COBRA for an extended period due to a disability, a second qualifying event, or an extension under applicable state law. See Q/A-1 of the Notice.
• The Notice affirms that premium assistance will end when an AEI becomes eligible for coverage under another group health plan or Medicare, even if such other coverage does not provide the same benefit options (e.g., becoming eligible for medical and dental coverage after losing medical, dental, and vision coverage). See Q/A-2 of the Notice.
• The Notice contains long-sought guidance on allocating the premium subsidy among employers, including in the context of a merger or acquisition. See Q/A-4 through Q/A-11 of the Notice.

As a reminder, AEIs must be notified about the end of the applicable subsidy period no later than 15 days and no earlier than 45 days before such date. In general, this notice period begins August 16, 2021 and ends September 15, 2021. The notice must indicate that unsubsidized coverage may be available. The Department of Labor published a model notice that can be used for this purpose.