IRS Steerage on COBRA Subsidy, Half II: Figuring out Help Eligible People and Coping with the Prolonged Election Interval | Dickinson Wright
Under the American Rescue Plan Act of 2021 (“ARPA”), a 100% COBRA grant is available to qualified beneficiaries who lose coverage due to involuntary termination or reduction in working hours. The grant is available from April 1, 2021 to September 30, 2021 for individuals who are not eligible for any other group insurance or Medicare. For more information, please see our previous customer notifications on the new COBRA grant accessible here and here.
On May 18, 2021, the IRS released Notice 2021-31, which provides helpful guidance on a number of issues in the form of 86 frequently asked questions. Part I of our series of customer notifications about the new COBRA subsidy (which can be accessed here) dealt with the following topics:
1. When did an “involuntary” termination of the employment relationship occur?
2. What events may constitute a “reduction in working hours” for eligibility?
3. What group health plans need to be offered to help eligible individuals?
This Part II deals with:
- When is a Qualified Beneficiary an Eligible Person?
- What rights are available when a potential eligible person has the right to an extended term?
Future customer notifications will address other issues in Note 2021-31.
Determine if a Qualified Beneficiary is an Eligible Person
A person is an “authorized person” if:
(a) the individual is a Qualified Beneficiary with continuing COBRA coverage from April 1, 2021 to September 30, 2021;
(b) the qualifying event is termination of employment (other than voluntary termination) or reduction in working hours;
(c) the person chooses the COBRA continuing coverage; and
(d) The individual is not eligible for any other group insurance or Medicare.
Our previous customer alert examined whether a termination is voluntary or involuntary. This is one of the essential elements in determining whether a Qualified Beneficiary is an eligible person. This customer notification addresses other aspects of the definition.
Spouse and dependent children
The 2021-31 Notice confirms that an Eligible Person includes the employee’s spouse and dependent children if the group health plan covered them at the time of the qualifying event. Further explanations in the notice are:
- A spouse or dependent child added to COBRA Continuing Insurance during an open enrollment period is not an eligible person.
- If the spouse or dependent child is covered by COBRA due to a divorce and the employee loses coverage due to involuntary termination or reduced working hours, the employee may be an eligible person, but the divorced spouse and dependent child are not eligible because their loss of cover is due to the divorce.
Eligibility for coverage by other group health plans
An individual is not an eligible person if they are eligible for another group insurance. Eligibility for a plan that provides only exempted benefits (such as a standalone dental or vision plan), a flexible health expense account, or a qualifying scheme for reimbursement of health benefits for small employers ends eligibility for the COBRA grant Not. Eligibility for another group health plan will terminate eligibility for the COBRA grant even if the plan does not offer a minimum value or is not affordable under the Affordable Care Act. This includes a Medical Reimbursement Agreement (HRA) unless the HRA qualifies as a Flexible Health Expenditure Account under Section 106 (c) (2) of the Internal Revenue Code.
A person may be entitled to another group insurance at the end of a waiting period or after an open enrollment period has expired. One fold deals with the extended notice periods under DOL’s COVID relief notices. Under these instructions, a person’s normal 30-day term for registration under a special HIPAA registration right is extended by up to one year. During the period that an individual has special enrollment rights, that individual is entitled to other group insurance and is not entitled to the COBRA grant.
Example: Frank is involuntarily terminated on October 1, 2020 and receives a COBRA notification. The loss of coverage in the health insurance plan of his employer triggers a special right to enroll in the health insurance plan of his spouse. According to the DOL relief announcements, Frank has until September 30, 2021 to exercise his special enrollment rights in his spouse’s employer plan. Frank can choose COBRA coverage from his previous employer’s plan, but he cannot receive Premium Assistance because he is eligible for coverage under his spouse’s group health plan.
Qualified Beneficiaries may not be aware of this rule and can assume that they will not be eligible for special enrollment immediately after the normal 30-day period has expired. If the qualified beneficiary confirms in the application for treatment as an eligible person that he is not entitled to any other cover, the employer can refer to this certificate, unless otherwise knowledge is available.
Eligibility for Medicare
If a Qualified Beneficiary is eligible to enroll in Medicare (generally at age 65), the individual is not an Eligible Person. If an employee is enrolled with Medicare at the time of a qualifying event that represents a reduction in hours or involuntary termination, they may be able to choose COBRA coverage but will not be eligible for a subsidy.
Qualified beneficiaries who are eligible for COBRA after 18 months due to an extension of disability or a second qualifying event
A Qualified Beneficiary who is eligible for more than 18 months due to an extension of the disability or the occurrence of a second qualifying event (e.g., a divorce that occurs within 18 months of coverage due to a reduction in working hours or involuntary termination) COBRA Coverage will be eligible for COBRA Coverage a COBRA Subsidy if the Qualified Beneficiary has chosen COBRA and has stayed with COBRA for the extended period. It is not clear from the previous guidelines whether the employer credit for an eligible person would amount to 102% or 150% of the COBRA premium in the event of an extension of disability.
Extended electoral term
ARPA requires that qualified beneficiaries who would otherwise qualify as eligible persons, who did not choose COBRA when it was first offered, or who dropped COBRA before the end of the 18 months and whose COBRA coverage period entered the subsidy period from 1 April 2021 through September 30, 2021 must be given a second opportunity to vote for COBRA. This is known as the “extended term”. The extended electoral period is only available within the framework of the federal COBRA, provided that state law permits a similar right.
The 2021-31 Communication provides the following guidelines on the extended legislative term:
- If an employee has chosen COBRA coverage for themselves only and their spouse and dependent children are otherwise eligible persons, the spouse and dependent children may be added to cover and receive Premium Assistance.
- If a Qualified Beneficiary (due to a reduction in working hours or involuntary termination) has an extended deadline to elect COBRA in accordance with the DOL COVID Relief Notices, but has not yet chosen COBRA, the Qualified Beneficiary must and can be given an extended election deadline Also select (1) COBRA retrospectively to the qualifying event date (without Award Support until April 1, 2021) or (2) COBRA from April 1, 2021 with Award Support.
- If a potential beneficiary is enrolled with COBRA for any, but not all, of the group insurance plans for which they were enrolled at the time of the qualifying event, the beneficiary must be given the opportunity to sign up for the other insurance company during the extended electoral term. For example, if the Qualified Beneficiary is only enrolled for the Medical Plan with COBRA, they must be offered the opportunity to enroll for Dental and Visual Coverage during the Extended Election Period (provided they are enrolled in those Coverage at the time of the qualifying event.)