Due to a variety of remaining questions surrounding the COBRA subsidies provided under the American Rescue Plan Act of 2021 (ARPA), the Hays Research and Compliance Department has put together the following compilation of frequently asked questions (FAQ). The FAQ summarizes the key information in the recently released Department of Labor’s (DOL) FAQ and includes common questions we have seen from clients. While the DOL FAQ focused primarily on providing information to affected employees, many of the common concerns facing employers are highlighted below. There remains a significant number of unanswered questions following the release of the DOL’s guidance. Until the DOL and IRS provide additional information and clarification, employers are encouraged to work with their legal counsel with respect to determining how the ARPA’s COBRA subsidy provisions apply to their businesses.
- Who is eligible for the subsidy?
a. The COBRA premium assistance is available for “assistance eligible individuals (AEIs).” An AEI is a COBRA qualified beneficiary who is eligible for COBRA by reason of a qualifying event that is a reduction in hours or an involuntary termination of employment and elects COBRA continuation coverage.
b. Assistance eligibility includes AEIs who:
- Experience a new qualifying event after April 1, 2021 and before September 30, 2021;
- Previously elected COBRA, whose previous COBRA coverage was discontinued and who are currently in the COBRA coverage period;
- Are still within their election period, who have not elected COBRA, and who are currently in the COBRA coverage period; or
- Are currently enrolled in COBRA coverage.
- Can employees who voluntarily asked to reduce their hours be AEIs?
a. AEIs may include employees who had either a voluntary or involuntary reduction in hours.
- Are spouses and dependents eligible for premium assistance?
a. The COBRA subsidy also applies to affected spouses and dependents who are entitled to COBRA coverage due to an employee’s reduction in hours or involuntary termination of employment.b. Spouses and dependents who are entitled to COBRA due to other qualifying events (e.g., an employee’s voluntary termination of employment, divorce, death of the employee, or a child ceasing to be a dependent) are not eligible for premium assistance.
- What is the difference between involuntary and voluntary termination?
a. The current agency guidance does not clarify the distinction between involuntary vs. voluntary termination, nor does it provide any examples.
- What about gross misconduct?
a. If the employee’s termination of employment was due to gross misconduct, the employee and any dependents will not qualify for COBRA continuation coverage. Employees who are not offered COBRA coverage due to this exclusion are not eligible for the premium assistance. Whether the employee’s actions met a standard of gross misconduct will be based on the employer’s own policies, and the determination should be made in consultation with the employer’s legal counsel. Gross misconduct is not defined in legislation or guidance.
- Is an employee who is terminated for cause (other than gross misconduct) eligible for the premium assistance?
a. No specific definition of “involuntary” that would create an exception applies. We believe that the employee would be assistance-eligible based on the information we have received to date.
- What are some examples of a reduction in hours?
a. The DOL guidance provides that a qualifying event that is a reduction in hours may include:
- Reduced hours due to change in a business’s hours of operations,
- A change from full-time to part-time status, including loss of coverage at the end of a stability period,
- Taking of a temporary leave of absence, or
- An individual’s participation in a lawful labor strike as long as the individual remains an employee at the time hours are reduced.
- Is an individual on disability leave eligible for the subsidy?
a. If the leave of absence is a reduction of hours that results in a loss of coverage, the individual could be an AEI eligible for the subsidy. A COBRA qualifying event due to a reduction in hours does not need to be involuntary.
- Is a temporary employee whose contract with the employer expires eligible for the subsidy due to involuntary termination?
a. This will likely depend on the specific facts and circumstances. Prior IRS guidance under IRS Notice 2009-27 (which addressed COBRA premium assistance under the 2009 American Recovery and Reinvestment Rights Act, or ARRA) states that “an involuntary termination may include the employer’s failure to renew a contract at the time the contract expires, if the employee was willing and able to execute a new contract providing terms and conditions similar to those in the expiring contract and to continue providing the services.” It is not clear whether the IRS is taking a similar approach under the ARPA in 2021.
- Are employees who are not U.S. citizens eligible for the subsidy?
a. The ARPA does not provide any language regarding the citizenship of the employee. If the employee would normally be eligible for COBRA and met the requirements of an AEI, then it appears they could be eligible for the subsidy.
This document is provided for general information purposes only and should not be considered legal or tax advice or legal or tax opinion on any specific facts or circumstances. Readers are urged to consult their legal counsel and tax advisor concerning any legal or tax questions that may arise.
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