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COBRA Benefit Extensions and Premium Subsidy

FAQs  (Updated May 25, 2021)

Subsidy Eligibility

Q:  What would disqualify a termed employee from being eligible for the subsidy?

A:  The subsidy is available to assistance eligible individuals (AEIs)—qualified beneficiaries who are eligible for and elect COBRA for a period of coverage within the subsidy period beginning April 1, 2021, and ending September 30, 2021, including qualified beneficiaries who elect COBRA under ARPA’s extended election period (discussed below). Only qualified beneficiaries whose qualifying event is an involuntary termination of employment or a reduction of hours are eligible.

Regarding reduction of Hours: While the subsidy applies only in the case of involuntary (as opposed to voluntary) terminations of employment, DOL guidance makes clear that it applies to both voluntary and involuntary reductions of hours.

Thus, the subsidy is not available to qualified beneficiaries whose qualifying events are, for example, voluntary terminations of employment, divorce, death, or a dependent child reaching age 26. The subsidy, like COBRA coverage in general, is not available to individuals terminated due to gross misconduct

Individuals eligible for the subsidy include employees, former employees, covered spouses, and covered dependents.

Q:  If an employee was involuntarily terminated and since then passed away, are his dependents cobra subsidy eligible?

A:  If the employee was COBRA- and subsidy-eligible before his death, his dependents should also be eligible.

Q:  What is an “involuntary termination?”

A:  An involuntary termination of employment is defined as a

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.

In practice, the determination of whether a termination is involuntary is based on the facts and circumstances. Following are some specific examples of terminations for which guidance has been provided:

  • Employer’s decision not to renew an employee’s contract would generally be considered an involuntary termination if the employee was otherwise willing and able to continue employment. However, if the parties understood at the time they entered into the contract, and at all times when services were being performed, that the contract was for specific services over a set term and would not be renewed, the completion of the contract without it being renewed is not an involuntary termination.
  • End of an employee’s FMLA, resulting in termination, is considered an involuntary termination if, prior to the termination, there was a reasonable expectation that the employee would return to work after the illness or disability had subsided. However, the end of the FMLA period is not itself considered a termination unless the employer takes action to end the individual’s employment.
  • Retirement is generally not considered involuntary; however, if the retiree a) had knowledge that he would be terminated absent the retirement, or b) retired in response to a “window program” in which the employee is offered severance arrangement to terminate employment within a specific period of time, the retirement may be considered involuntary.
  • Involuntary termination for cause is considered involuntary unless the employee’s actions resulting in termination constitutes gross misconduct.
  • Employee resignation due to unfavorable work conditions is not considered involuntary unless the employee can demonstrate that the employer’s actions (or inactions) resulted in a “material negative change in the employment relationship analogous to a constructive discharge.”
  • Voluntary termination due material reduction in hours is considered an involuntary termination for purposes of eligibility for the COBRA subsidy, even if the reduction in hours did not result in loss of coverage.

Q:  If an employee’s FMLA ran out on 8/1/20 and he was terminated, are he and his dependents eligible for the subsidy?

A:  It is not always clear when termination of employment is involuntary. For example, an employee may be told by the employer that termination will likely occur unless the employee “voluntarily” takes an early retirement package. We are still waiting for agency guidance that will clarify the definition of involuntary termination. Assuming this scenario is considered involuntary, the employee and his dependents will be subsidy-eligible if they are still within their COBRA coverage period and are otherwise eligible for the subsidy.

Q:  Please provide the termination date range of terminated employees who would qualify.  November 1, 2019 to ___________?

A:  August 2021, assuming COBRA coverage would begin on Sept 1.

Q:  Employees will be laid off effective June 1, 2021.  Will they be eligible for the subsidy?  What happens after Sept 2021?

A:  Yes—employees who involuntary terminate during the subsidy period will be eligible for the subsidy until it ends on Sept 30, assuming they are not eligible for other group coverage. After that date, regular COBRA rates would apply, or the individual may be eligible for Medicaid or a special enrollment period through the Marketplace or individual health insurance coverage outside the Marketplace.

Q:  Is a participant who is enrolled only in vision or dental coverage eligible for subsidized medical coverage?

A:  Yes, if the participant was enrolled in medical coverage prior to termination, was eligible for COBRA coverage following termination, and otherwise meets the subsidy eligibility requirements.

Q:  Is COBRA premium assistance available for participants in vision-only and dental-only plans?

A:  Yes. COBRA premium assistance is available for continuation coverage of any COBRA=eligible group health plan except a health FSA.

Q:  If an otherwise eligible individual has enrolled in other group coverage, but the coverage has not yet taken effect, is the individual eligible for the COBRA subsidy?

A:  Yes. COBRA premium assistance is available to a potential assistance eligible individual until the individual is permitted to enroll in coverage under any other group health plan (including during a waiting period for another plan).

Q:  A individual was eligible for, but did not elect, COBRA, and is still within his COBRA coverage period. He instead enrolled in other group coverage, but the other group coverage ended prior to April 1 (when the subsidy period began). Is he eligible for the subsidy under the first health plan (for which he did not elect COBRA)?

A:  Yes. Enrollment in other group health coverage before electing COBRA does not end the period of eligibility for COBRA continuation coverage.

Q:  Can an individual who is otherwise eligible for the COBRA subsidy but is currently enrolled in individual health insurance coverage through an Exchange elect COBRA coverage and receive the premium subsidy?

A:  Yes; however, the individual will not be eligible for a premium tax credit to help pay for coverage under the Exchange during any month that the individual is enrolled in COBRA.


Subsidy Administration

Q:  Can an employer require that its employees self-certify or attest that they are eligible for COBRA premiums assistance?

A.  Yes. Employers who claim the tax credit must retain a self-certification or other documentation to substantiate that the individual was eligible for the subsidy.

Q:  Can an employer rely on an employee’s attestation regarding a reduction in hours or involuntary termination for the purpose of substantiating eligibility for the premium assistance tax credit?

A:  Yes, an employer may rely on an individual’s attestation, unless the employer has actual knowledge that the individual’s attestation is incorrect.

Claiming the COBRA Premium Assistance Credit

Q:   When does an employer become entitled to the premium assistance credit?

A:   When the employer receives a participant’s COBRA election notice (or receives notice from the TPA that the participant has elected COBRA), the employer is entitled to the credit for premiums not paid by the participant for any period of coverage during the April 1-September 30 subsidy period that has elapsed. For example, if the TPA receives an election form on June 17 from a participant who elects coverage effective April 1, the employer will immediately become entitled to a credit for the premiums not paid by the participant for the period of coverage from April 1 through July 31. On August 1, the employer will be entitled to a credit for the August 1 through August 31 period, and on September 1 for the period from September 1 through September 30.

Q:   How does an employer claim the premium assistance credit?

A:   An employer should report the credit and the number of individuals receiving COBRA premium assistance on the designated lines of its federal employment tax return(s), usually Form 941 (Employer’s Quarterly Federal Tax Return).

In anticipation of receiving the credit, the employer may (1) reduce the deposit of federal employment taxes, including withheld taxes, that it would otherwise be required to deposit, up to the amount of the anticipated credit, and (2) request an advance of the amount of the anticipated credit that exceeds the federal employment tax deposits available for reduction by filing Form 7200 (Advance Payment of Employer Credits Due to COVID-19).

Q:   May the employer reduce its federal employment deposits in anticipation of the premium assistance credit?

A:   Yes. If the anticipated credit exceeds the federal employment tax deposits available for reduction, the employer may file Form 7200 to request an advance for the remaining credit.

Q:   How does an employer with no employment tax liability claim the credit?

A:   The employer should claim the credit on Form 941, as well as any advance payments received. The employer should enter zero on all remaining non-applicable lines so that the overpayment amount on the form is the amount of the credit reduced by any advance payment received.

Q:  If a participant fails to provide notice of eligibility for another group health plan or Medicare and continues receiving COBRA premium assistance, will the employer be required to refund any premium assistance credit received after the participant’s eligibility ended?

A:   No, provided the employer was not aware that the participant was no longer eligible for assistance. If the employer becomes aware that the participant is no longer eligible, the employer is not entitled to the credit from that point forward.

Q:  Is the premium assistance credit included in the employer’s gross income?

A:  Yes.

Q:  May an employer claims the premium assistance credit with respect to amounts considered qualified wages under the CARES Act or as qualified health plan expenses?

A:   No. An employer may not claim a double benefit with respect to these amounts.

Q:   Is an employer that uses a third-party payer (such as a reporting agent or payroll service provider) to report and pay employment taxes to the IRS entitled to receive the premium assistance credit?

A:   Yes; however, different rules apply depending on the type of third-party payer the employer uses. Refer to IRS Notice 2021-31 for a detailed explanation of these rules.

Q:   If a participant pays premiums for which he should have received COBRA premium assistance, and he is reimbursed for the premiums paid, when is the employer entitled to claim the premium assistance credit with respect to the reimbursement?

A:   The employer is entitled to the credit on the date the participant is reimbursed.


March 31, 2021

Two recent governmental changes were announced that will affect the availability and administration of COBRA benefits in 2021. This letter summarizes these changes and what they mean for your employees and your company.

EBSA Disaster Relief Notice 2021-01

In March of 2020, the Department of Labor (DOL), Department of Treasury (Treasury), and Internal Revenue Service (IRS) extended certain benefits-related deadlines for HIPAA special enrollment, COBRA elections, appeals, external reviews, and ERISA notices and disclosures. The relief was provided pursuant to ERISA §518 and Internal Revenue Code §7508A, which allow certain compliance deadlines to be disregarded for a period of up to one year in the event of a public health emergency. Although the 2020 notice provided relief through the end of the outbreak period (60 days following the end of the National Emergency, which is ongoing), the one-year limit specified in §518 and §7508A expired on February 28, 2021.

On March 1, 2021, EBSA Disaster Relief Notice 2021-01 (Notice) was issued by the DOL and approved by IRS and Treasury. The notice clarified that the one-year extension period allowed under §518 and §7508A would be applied on a case-by-case basis, meaning that each individual’s deadline will be disregarded until the earlier of:

  • One year from the date that the individual was first eligible for relief, or
  • The end of the outbreak period (60 days after the National Emergency ends).

For example, if an individual’s initial COBRA election period would have expired on March 15, 2021, the individual will have until the earlier of March 14, 2022 or the end of the outbreak period to make an election. In no case will the delay exceed one year.

The Notice encourages plan administrators and fiduciaries to

  • notify participants who are nearing the end of the relief period and are at risk of losing rights under the plan, and
  • make participants aware of other coverage options that may be available to them, including the opportunity to obtain coverage through the Health Insurance Marketplace.

American Rescue Plan Act

In a separate action, Congress passed the American Rescue Plan Act (“ARPA”), which provides a 100% subsidy on COBRA medical, dental, and vision premiums for “assistance eligible individuals” for the period beginning April 1, 2021 and ending September 30, 2021.

How is the subsidy funded?

The COBRA subsidy is paid by the federal government. But ARPA requires employers to front the full cost of premiums owed to a plan administrator. This means that:

  • The employer pays the COBRA premiums during the subsidy period, but is made whole by claiming a tax credit against the employer’s 1.45% Medicare Hospital Insurance (“HI”) tax, reduced by any credits allowed under other COVID-19 relief legislation, such as the CARES Act or the Families First Coronavirus Response Act (“FFCRA”). In your case, this means that subsidy eligible individuals will no longer submit a COBRA premium payment during the subsidy period. You as the self-funded employer will simply cover the cost of claims like any other eligible enrollee.
  • Subsidy payments that exceed the allowable tax credit in any quarter are treated as a tax overpayment and employers will become eligible for a direct refund. The technical aspects of the tax credit, such as the timing of the credit and the mechanics for claiming it, have yet to be explained.

Who is eligible for the subsidy?

An assistance eligible individual is any individual (including a covered dependent) who loses coverage as the result of a reduction in hours or involuntary termination (for reasons other than gross misconduct) and is not eligible for other group health coverage or Medicare. The class includes those:

  • who are currently enrolled in COBRA or become eligible during the subsidy period;
  • who did not elect COBRA during their initial election period, but are still within the 18-month coverage period;
  • who elected COBRA during their initial election period but let the coverage lapse, and are still within the coverage period; and
  • whose original 18-month COBRA period has expired, and who have not yet notified the plan of the intent to elect COBRA coverage for an extended period due to a disability determination.

A dependent child who loses coverage because of age (i.e., reaches age 26) is not eligible for the subsidy.

How do participants receive the COBRA subsidy?

Participants eligible for the subsidy who are already enrolled in COBRA as of April 1, 2021 are not required to take any action; they will automatically receive the subsidy. Current enrollees must be notified of the subsidy, and individuals who have already paid premiums for any portion of the April-September subsidy period must be reimbursed for the amount previously paid. Employers may apply for a payroll tax credit for the reimbursed amounts, as described above.

ARPA requires that a new election period be offered to assistance eligible individuals who declined COBRA coverage or who previously elected, then discontinued, COBRA coverage before April 1, 2021. Coverage for these assistance eligible individuals will be effective on April 1; no premiums will be required for any period prior to that date. Affected individuals may only take advantage of the subsidy if they are still within their 18-month COBRA coverage period. For example, an individual who did not elect COBRA coverage and whose coverage period would have ended on May 31, 2021 may be eligible for the subsidy for the months of April and May, but the individual’s COBRA coverage will expire on May 31. ARPA does not extend the COBRA eligibility period.

Election notices describing the premium subsidy must be delivered to assistance eligible individuals prior to May 31, 2021. Plans must send a new election form or add a disclosure form to existing election forms; the new forms must include:

  • forms necessary to establish eligibility for premium assistance,
  • contact information for the plan administrator or other persons maintaining information related to premium assistance,
  • a description of the extended election period, and (iv) a description of the individual’s obligation to notify the plan of the existence of other group health plan coverage.

The DOL will release sample model notices and model election forms on or before April 11, 2021.

Assistance eligible individuals must elect coverage within 90 days of the date of the election notice; the enrollment extensions provided under EBSA Disaster Relief Notice 2021-01 (described above) are not recognized. An employer may allow enrollees to elect a plan that is different from the plan in which he or she was enrolled prior to the qualifying event if: (i)  the premium for the alternate coverage is not more than the coverage in which the employee is currently enrolled and the alternate plan is offered to similarly situated employees; (ii) the coverage is not an excepted benefit, such as dental and vision only; and (iii) the group health plan is not an FSA or HSA.

When does the subsidy end?

The premium subsidy will end on the earlier of the first day the individual becomes eligible under another group health plan, the first day the individual becomes eligible for Medicare, the date the individual’s 18-month COBRA coverage period expires, or September 30, 2021.

Note: if an individual previously elected COBRA coverage for dental-only or vision-only coverage and subsequently becomes eligible to enroll in another group health plan that does not offer dental or vision coverage, the individual’s eligibility for premium assistance will end.

How do these rules affect employers not subject to COBRA?

Very small employers (under 20 employees) are not subject to COBRA; however, many states, including California and Arizona, offer “mini COBRA” programs that apply to these small employers. Although ARPA expressly includes “mini-COBRA” plans offered at the state level in its definition of COBRA continuation coverage, it does not explain how the subsidy will be administered for state plans. Additional guidance is expected in the coming weeks.

What are the next steps?

Pinnacle will work with you to identify individuals who may be affected by ARPA and the EBSA Disaster Relief Notice 2021-01. As your COBRA administrator, we will:

  • manage COBRA enrollment deadlines on an individual basis;
  • update COBRA enrollment materials to include information about the subsidy;
  • provide notice of the subsidy to current COBRA enrollees and to assistance eligible individuals who have received enrollment notices but have not yet enrolled;
  • provide a second enrollment period for assistance eligible individuals who did not elect (or elected and later discontinued) COBRA coverage but are still within the COBRA coverage period;
  • refund, within 60 days of the date payment was made, COBRA premiums paid for the subsidy period;
  • notify COBRA-eligible individuals who are nearing the end of the extended enrollment period of other coverage options, including coverage through Covered California and the Marketplace; and
  • notify assistance eligible individuals when their ARPA subsidy will expire. Notice will be given at least 15, but no more than 45 days before expiration.

We recognize the challenges that come with these new policy changes, and we want to assure you that we remain dedicated to serving our members. As always, we’re here to help with any questions regarding these new requirements. Please contact your Account Manager with any questions or concerns.

David Zanze

President, Pinnacle Claims Management, Inc.



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