Understanding the COBRA Premium Assistance Credit

Under the American Rescue Plan Act (ARPA), CORBA premiums are subject to a temporary 100% reduction for individuals and their families. The reduction is available for those who opt for COBRA continuation because they have lost group health insurance coverage due to losing hours at work or being involuntarily terminated. The IRS recently released a forum that addressed the top 86 questions asked about the premium to clarify the rules governing this temporary premium assistance plan. Here’s what you need to know:

Coverage Period for the Assistance?

The assistance is available for periods of COBRA coverage starting between April 1, 2021 and September 30, 2021.

Who is Eligible to Receive the Assistance?

Employees of private-sector employers with more than 20 employees are eligible. COBRA is available to certain employees whose hours have been reduced, and extends to their dependents, spouses, previous spouses and retirees, who were covered by the group health plan. The coverage becomes available after an employee’s hours reduction or involuntary termination.

People can become eligible for assistance more than once. For instance, if a company temporarily lays employees off on two different occasions during the assistance periods, the employees are eligible for assistance both times.

Who is Excluded from Eligibility?

People who are terminated for gross misconduct or voluntarily leave their job are not eligible for this coverage.

The assistance is also not available for individuals who are eligible for coverage under any other group health plan or who qualify to receive Medicare. If someone becomes eligible for another coverage plan and they fail to notify their group health plan, they will face a $250 penalty.

What Are the Tax Implications for Employers?

The ARPA requires that group plans or health insurance issuers continue to treat people who are eligible for COBRA assistance as if they have paid the total amount of their COBRA premium for their coverage. Plans that do not treat the eligible individual like they've paid in full could be subject to an excise tax.

The employer or the insurer to whom the COBRA continuation premiums are paid, can claim a refundable tax credit against their share of Medicare taxes, as outline in Sec. 6432 of the ARPA.

In order to claim the credit, employers will need to retain records that show that the covered individual was eligible for assistance. This can consist of either a self-certification or an attestation that the employee was eligible for cover and did not qualify for Medicare or another group plan.

Do these benefits apply to mini-COBRA?

Yes, the premium assistance is also available to individuals who apply for state coverage that is comparable to COBRA continuation coverage.

Understanding who is eligible for premium assistance and what your company's obligations and rights are can help you get the most out of tax credits while avoiding any potential fees or penalties. Talk to your accountant about the implications of the temporary COBRA assistance for your enterprise and ensure you receive proper tax credits.