The loss of health insurance is a major concern for the millions of Americans who have filed for unemployment throughout the pandemic. While COBRA continuation coverage can help bridge the gap between jobs, former employers generally are not required to pay part of the premiums—meaning some beneficiaries have to foot the entire bill for their insurance.
Congress sought to address this issue with a provision in the American Rescue Plan Act of 2021 (ARP) that provides COBRA premium assistance and provider-related tax credits. As with any other major legislation affecting taxes, that meant the Internal Revenue Service had to determine the best way to administer those provisions.
Last week, the agency announced the publication of Notice 2021-31, which includes “guidance for employers, plan administrators, and health insurers regarding the new credit available to them for providing continuation health coverage to certain individuals under COBRA.”
How does the American Rescue Plan Act affect COBRA continuation coverage?
“The American Rescue Plan provides a temporary 100 percent reduction in the premium that individuals would have to pay when they elect COBRA continuation health coverage following a reduction in hours or an involuntary termination of employment,” the IRS explains. “The new law provides a corresponding tax credit for the entities that maintain group health plans, such as employers, multiemployer plans, and insurers.”
While COBRA is a federal plan that affects most employers with 20 or more full-time employees, the IRS notes that some states have their own version of continuation coverage. Employees receiving benefits from what the IRS calls “state ‘mini-COBRA’” plans are also eligible to receive premium assistance.
How long will the COBRA premium assistance last?
The IRS says ARP will provide COBRA premium assistance for “Assistance Eligible [Individuals]” from April 1, 2021 to September 30, 2021 (1). However, “premium assistance is not available if an individual is eligible for coverage under any other group health plan or for Medicare” (2).
What else is included in Notice 2021-31?
Notice 2021-31 includes a nearly 40-page question-and-answer section that covers the following COBRA premium assistance topics:
- Eligibility for COBRA Premium Assistance
- Reduction in Hours
- Involuntary Termination of Employment
- Coverage Eligible for COBRA Premium Assistance
- Beginning of COBRA Premium Assistance Period
- End of COBRA Premium Assistance Period
- Extended Election Period
- Extensions Under the Emergency Relief Notices
- Payments to Insurers Under Federal COBRA
- Comparable State Continuation Coverage
- Calculation of COBRA Premium Assistance Credit
- Claiming the COBRA Premium Assistance Credit
To learn more, check out the links below.
Sources: IR-2021-115; Notice 2021-31