The American Rescue Plan Act of 2021 (“ARPA”) includes a 100% COBRA premium subsidy for “assistance eligible individuals,” for periods of coverage occurring between April 1, 2021 and September 30, 2021, as described in earlier blog posts.  An “assistance eligible individual” is any COBRA “qualified beneficiary” who loses group health coverage on account of a covered employee’s reduction in hours of employment or involuntary termination of employment. However, the subsidy is not available if the individual is eligible for other group health coverage or Medicare.

In general, COBRA’s definition of a “qualified beneficiary” includes only a covered employee and his or her spouse and dependent children who were covered under the health plan on the day before the COBRA qualifying event, as well as children born to or adopted by the employee during a period of COBRA coverage. Thus, other individuals who are receiving continued health coverage are not eligible for the ARPA premium subsidy. For example, some group health plans offer “COBRA-like” continuation coverage to an employee’s covered domestic partner, but domestic partners are not qualified beneficiaries under COBRA’s definition. In addition, if a former employee gets married while receiving COBRA coverage, the employee may enroll his or her new spouse in COBRA coverage in accordance with HIPAA’s special enrollment rules, but the spouse still is not a “qualified beneficiary” for COBRA purposes, because the spouse was not covered by the plan on the day before the employee’s qualifying event.

If a former employee who is an assistance eligible individual elects COBRA coverage that includes a family member who is not a qualified beneficiary (e.g., a domestic partner or a new spouse to whom the employee was not married at the time of the qualifying event), how much of the premium is not subsidized? And how much is the payroll tax credit to which the employer (or multiemployer plan or insurer) is entitled?

The IRS has not yet issued guidance on the ARPA premium subsidy. However, it may be instructive to review the guidance issued in 2009 when Congress enacted a similar COBRA subsidy as part of the American Recovery and Reinvestment Act (ARRA).  Although there is no assurance that the IRS will reach the same conclusions under ARPA, it may be helpful from a planning perspective to understand how this issue was previously addressed. CAUTION: The following analysis is based on the 2009 ARRA guidance and should not be relied upon without further guidance from the government. 

In connection with the 2009 ARRA COBRA premium subsidy (which was a 65% government subsidy), the IRS took an incremental approach when determining the amount eligible for the subsidy (and payroll tax credit).  In other words, if the cost of covering a non-qualified beneficiary did not add to the cost of covering the eligible individuals, then the COBRA premium for the non-qualified beneficiary is zero for purposes of the subsidy, and the entire premium was eligible for the subsidy. If the cost of covering a non-qualified beneficiary added to the cost of coverage, then the incremental cost to cover the non-qualified beneficiary was not eligible for the COBRA premium subsidy.

Example 1: Susan, an assistance eligible individual, elects COBRA coverage due to her involuntary termination from employment. She elects coverage for herself and all of her family members (who were covered under the plan on the day before the qualifying event), which includes her two dependent children and her domestic partner.  Susan and her family members are not eligible for other group health coverage or Medicare.

Under the terms of the plan, COBRA coverage for an employee plus-two-or-more-dependents costs $800 per month.  Therefore, the additional cost to cover Susan’s domestic partner is $0 per month. As a result, Susan would be entitled to the ARPA COBRA premium subsidy for the full $800 per month, and her former employer may claim the payroll tax credit for the full $800 per month.

Example 2:  Same facts as Example 1, except that Susan has only one child.  Although Susan still would be required to pay $800 per month for COBRA coverage for herself and two or more dependents, the COBRA premium is only $600 per month for self-plus-one-dependent. Accordingly, the incremental cost of covering her domestic partner is $200 per month. Therefore, Susan would be entitled to the ARPA subsidy in the amount of $600 per month (and must pay $200 per month for COBRA coverage for her domestic partner). The employer could claim the payroll tax credit for only $600 per month for the coverage for assistance eligible individuals.

This is just one of many questions that arise under the ARPA COBRA subsidy. We expect the government agencies to issue guidance soon.  Until then, the guidance issued in connection with the 2009 ARRA premium subsidy may be instructive as plan sponsors get ready to administer the ARPA subsidy.

Photo of Paul M. Hamburger Paul M. Hamburger

Paul Hamburger is co-chair of the Employee Benefits & Executive Compensation Group and head of the Washington, DC office. Paul is also a leader of the Practice Center’s health and welfare subgroup and a member of Proskauer’s Health Care Reform Task Force.

Paul…

Paul Hamburger is co-chair of the Employee Benefits & Executive Compensation Group and head of the Washington, DC office. Paul is also a leader of the Practice Center’s health and welfare subgroup and a member of Proskauer’s Health Care Reform Task Force.

Paul provides technical knowledge and advice to employers on all aspects of their employee benefit programs, and advises employee benefit plan trustees and service providers on ERISA and employee benefit plan-related matters. He has extensive experience in negotiating service provider and outsourcing agreements. Paul frequently represents clients before government regulatory agencies, including the Internal Revenue Service, Department of Labor and Pension Benefit Guaranty Corporation.

Paul focuses on all matters affecting employee benefit plans, including:

  • 401(k) plans, ESOPs, and defined benefit plans, including cash balance pension plans
  • Executive compensation plans and agreements
  • Welfare benefit plans, including cafeteria plan, COBRA, and health care reform (PPACA) issues

Recognized by a number of publications for his exceptional work, Paul is described by The Legal 500 United States as “one of the best in his field; he inspires a high level of confidence and is a pleasure to work with.” Chambers USA notes that Paul’s clients refer to him as “a creative, business-oriented and brilliant lawyer who educates and enlightens.”

As a noted thought leader in his field, Paul frequently speaks on employee benefit matters. In addition, he served for several years as an adjunct professor at Georgetown University Law Center teaching the LL.M. tax course on ERISA Health and Welfare Benefit Plans.

An author of numerous articles on employee benefits matters, Paul has produced a number of nationally-circulated loose leaf publications, published by Thompson Information Services: Mandated Health Benefits – The COBRA Guide, The Guide to Assigning & Loaning Benefit Plan Money, and The Pension Plan Fix-It Handbook. Most recently, he was the managing author of the 6th edition of The New Health Care Reform Law – What Employers Need to Know (A Q&A Guide), published by Thompson HR.

Photo of Roberta Chevlowe Roberta Chevlowe

Roberta K. Chevlowe provides advice to employers and boards of trustees of multiemployer benefit plans on a broad range of issues relating to their retirement, health and other employee benefit plans. With nearly three decades of experience practicing in this area, Roberta employs…

Roberta K. Chevlowe provides advice to employers and boards of trustees of multiemployer benefit plans on a broad range of issues relating to their retirement, health and other employee benefit plans. With nearly three decades of experience practicing in this area, Roberta employs a practical, business minded approach to helping her clients comply with the various requirements imposed by ERISA, the Internal Revenue Code, COBRA, the Affordable Care Act and other federal and state laws affecting employee benefit programs. Roberta’s practice also includes advising clients in connection with benefit claim appeals, lawsuits and government audits; drafting plan documents, policies and employee communications materials; and negotiating with plan service providers.

Roberta is best known for her work in the area of COBRA compliance and for advising employers in connection with the benefits they provide to employees’ domestic partners and same-sex spouses. She is a co-author of The COBRA Handbook and lectures and publishes articles on a variety of employee benefits topics. In addition, Ms. Chevlowe is a member of Proskauer’s Health Care Reform Task Force, and she led the Firm’s Domestic Partner Benefits Task Force.

Photo of Mary Grace Richardson Mary Grace Richardson

Mary Grace Richardson is an associate in the Labor & Employment Department and a member of the Employee Benefits & Executive Compensation Group. She counsels clients on a myriad of issues related to employee retirement and health plans.

Mary Grace received her J.D.

Mary Grace Richardson is an associate in the Labor & Employment Department and a member of the Employee Benefits & Executive Compensation Group. She counsels clients on a myriad of issues related to employee retirement and health plans.

Mary Grace received her J.D. and diploma in comparative law, summa cum laude, from Louisiana State University Paul M. Hebert Law School. At LSU, she served as a senior editor of the Louisiana Law Review, was a member of the Board of Advocates, and was a member of the Order of the Coif.

Prior to joining Proskauer, Mary Grace clerked for Chief Judge S. Maurice Hicks, Jr. in the United States District Court for the Western District of Louisiana.