The American Rescue Plan Act (“ARPA”) has been the law of the land since March 11, 2021. Even so, many questions remained unanswered with respect to ARPA’s impact on group health plans. To resolve some of the lingering uncertainty, the IRS published Notice 2021-31 (the “Notice”), which is summarized, in part, below.

In short, ARPA provides (i) a subsidy for certain insurance premiums under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), (ii) an opportunity for certain individuals to enroll or re-enroll in COBRA continuation coverage, and (iii) if permitted by the employer, an option to elect less expensive health coverage.

The Notice clarifies a range of issues arising under ARPA’s COBRA provisions. We describe some of the most significant items below.

• Eligibility for COBRA Premium Assistance: Assistance Eligible Individuals (“AEIs”) are eligible for COBRA premium assistance under ARPA. An AEI is any person who (i) is a qualified beneficiary as the result of (a) the reduction of hours or (b) involuntary termination of employment (other than for gross misconduct), (ii) is eligible for COBRA continuation coverage during some or all of the period running from April 1, 2021 to September 30, 2021, and (iii) elects COBRA coverage. AEIs include the spouse or dependent children of an employee who lost coverage due a reduction of hours or involuntary termination of employment.
• Self-Certification: Employers may require individuals to self-certify that they meet the requirements of an AEI and may rely on such certifications or on the attestations set forth therein absent actual knowledge to the contrary. Such certifications should be retained in the employer’s records to substantiate a claim for COBRA premium credits and must be provided to the IRS upon request. In many cases, the employer may need to coordinate with its COBRA administrator to establish a procedure for gathering and retaining self-certifications.
• Qualifying Events: Only a reduction of hours or an involuntary termination of employment count towards AEI status. Other types of qualifying events (e.g., divorce, a covered child aging off the plan, or death) are disregarded for this purpose.
• Reduction of Hours: Both voluntary and involuntary reductions of hours may trigger COBRA premium assistance. Moreover, furloughs, lawful strikes, and lockouts can be considered reductions of hours under ARPA.
• Involuntary Termination: The Notice defines an involuntary termination as “a severance from employment due to the independent exercise of the unilateral authority of the employer to terminate employment, other than due to the employee’s implicit or explicit request, where the employee was willing and able to continue performing services.” However, an employee-initiated termination for good reason (e.g., constructive discharge) can be considered an involuntary termination for this purpose. As expected, identifying an involuntary termination is based on the facts and circumstances.
• COBRA Extensions: Individuals who elected and remained on COBRA for an extended period (i.e., due to a disability determination, second qualifying event, or extension under state mini-COBRA laws) may be eligible for COBRA premium assistance if the original qualifying event was a reduction of hours or an involuntary termination of employment and their maximum coverage period (due to an extension) overlaps with the period beginning April 1, 2021 and ending September 30, 2021. Importantly, employers who only looked back 18 months (to October 1, 2019) to determine which groups of qualified beneficiaries might be AEIs may need to look back 36 months to ensure that they do not miss anyone who may qualify for premium assistance.
• Impact of Retroactive COBRA Coverage: Some AEIs may be entitled to receive retroactive COBRA coverage under separate relief (the “Disaster Relief”), or otherwise, for which they will be responsible for paying premiums. Late or unpaid premiums for retroactive COBRA coverage do not affect eligibility for COBRA premium assistance under ARPA. Somewhat surprisingly, AEIs who elect COBRA with premium assistance under ARPA, but decline to elect retroactive COBRA coverage at that time may lose their ability to elect such retroactive coverage at a later date. The Notice provides the following example:
• Example: An individual has a qualifying event that is an involuntary termination of employment on March 1, 2021, and receives the COBRA election notice the same day. The individual receives the notice of the ARPA extended election period on May 31, 2021, and elects COBRA continuation coverage with COBRA premium assistance starting April 1, 2021. Assuming the Outbreak Period (i.e., 60 days following the announced end of the COVID-19 National Emergency) has not ended, the individual does not remain eligible after July 30, 2021 (60 days from the receipt of the individual’s notice of the ARPA extended election period), to elect COBRA continuation coverage starting March 1, 2021, despite the extensions available under the Disaster Relief.
• Extended Election Period: A potential AEI who experienced a qualifying event before April 1, 2021, and who is within his or her otherwise applicable COBRA election period (including any extensions under the Disaster Relief) may elect COBRA coverage under ARPA and receive premium assistance. The Notice provides the following example:
• Example: An individual is involuntarily terminated from employment on December 15, 2020, and receives the COBRA election notice on January 4, 2021. As of April 1, 2021, the individual has not elected COBRA continuation coverage. The individual must receive a notice of the ARPA extended election period for COBRA continuation coverage. The individual may elect retroactive COBRA continuation coverage under the original COBRA election period (as extended by the Disaster Relief), but will be eligible for COBRA premium assistance only for periods of coverage beginning on or after April 1, 2021. Alternatively, the individual may decline to elect retroactive COBRA continuation coverage under the original COBRA election period (as extended by the Disaster Relief) and instead elect COBRA continuation coverage under the ARPA extended election period only for the period of coverage beginning on or after April 1, 2021.
• Other Important Items: The Notice also provides guidance with respect to the types of coverage available for premium assistance (Questions 35-42), the period during which relief applies (Question 43-50), and the impact on state continuation coverage (Questions 61-62). In addition, the Notice clarifies how employers can calculate and claim the COBRA premium assistance credit (Questions 63-86).

We previously summarized the key provisions of ARPA in our SW Benefits Update, “Help Is on the Way – Important Changes to COBRA Under the American Rescue Plan Act” and in our SW Benefits Update, “DOL Clarifies Key Provisions, Issues Model Notices for COBRA Relief Under ARPA.”

Our summary of the Notice, above, highlights some of the most significant issues, but is not exhaustive. Consider reviewing the Notice in its entirety here. In addition, employers should note that the Notice does not address all outstanding issues and more guidance from the agencies may be forthcoming.

In addition, the Department of Labor published a series of Frequently Asked Questions, along with a summary of ARPA and several model notices, all of which can be found here.

Employers may want to familiarize themselves with ARPA and the new guidance in order to answer employee questions, to timely provide the required notices (some of which are due May 31), and to coordinate with and monitor third-party administrators. Employers might also consider how these rules impact any ongoing or planned terminations, including layoffs, furloughs, severance agreements, and buy-outs.