On July 26th, 2021, the Internal Revenue Service (IRS) issued updated COBRA coverage guidance relating to tax breaks. Accordingly, the American Rescue Plan Act of 2021 (ARP) provides tax credits involving COBRA continuation health coverage. Specifically, under Notice 2021-46, the IRS provides additional guidance for employers, plan administrators, and health insurers. The Notice includes updated information regarding the application of the ARP to temporary premium assistance for COBRA continuation coverage. Earlier, in July 2021, the IRS announced an update to its nonqualified plan audit guide. Overall, the updated guide provides an expanded discussion of the legal authority surrounding nonqualified benefits and pension plans.
Connection Between the ARP and COBRA
The ARP provides a temporary 100% reduction in individuals’ premiums when electing COBRA continuation health coverage. Generally, the election for coverage occurs following a reduction in hours or involuntary termination of employment. Previous IRS guidance, specifically Notice 2021-31, provides a corresponding tax credit for entities maintaining group health plans. Overall, these groups include employers, multiemployer plans, and insurers. The 100% premium reduction and the credit are also available for events under similar state laws known as “mini-COBRA” laws. Since publishing the updated COBRA Coverage Guidance (Notice 2021-46), the IRS stated that the latest release supplements Notice 2021-31.
Overview of IRS Notice 2021-46
In general, the updated COBRA coverage guidance provides information regarding the following:
- The availability of premium assistance to individuals eligible for an extension;
- If premium assistance for vision or dental-only coverage ends due to eligibility for other health coverage;
- The availability of premium assistance under state statutes that limit continuation coverage to government employees; and
- If employers may claim premium assistance tax credits if SHOP (Small Business Health Options Program) exchanges require premium payments.
Furthermore, the Notice contains 11 questions and answers addressing the COBRA continuation health coverage under the ARP. Previously, aside from Notice 2021-31, the IRS released associated Frequently Asked Questions on April 7th, 2021. For the most part, the federal agency claims that Notices 2021-31 and 2021-46 provide more detail than earlier releases. Markedly, the latest Notices include numerous examples of the practical application of premium assistance and credit.
As the IRS releases new information, the agency will continue to update information related to health plans on its website.