IRS Pointers on the COBRA Subsidy Half I: Involuntary Dismissal, Lowered Hours and Group Well being Plans Coated by the Subsidy – Employment and Personnel
IRS Guidelines on COBRA Subsidy, Part I: Involuntary Dismissal, Reduced Work Time, and Subsidy-Covered Group Health Plans
May 26, 2021
Dickinson Wright PLLC
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Under the American Rescue Plan Act of 2021 (“ARPA”), a 100% COBRA grant is available to qualified beneficiaries who lose coverage due to involuntary termination or reduction in working hours. The grant is available from April 1, 2021 to September 30, 2021 – if the individual is not eligible for any other group insurance or Medicare. For more information, please see our previous customer notifications on the new COBRA grant accessible here and here.
On May 18, 2021, the IRS released Notice 2021-31, which provides helpful guidance on a number of issues in the form of 86 frequently asked questions. This client alert solves the following problems:
1. When did an “involuntary” termination of the employment relationship occur?
2. What events may constitute a “reduction in working hours” for purposes of eligibility?
3. Which group health plans are covered by the COBRA subsidy?
Future customer notifications will address other issues in Note 2021-31.
1. Involuntary termination of employment
Involuntary termination of employment generally means “… a separation from employment due to the independent exercise of the employer’s unilateral power to terminate the employment, except as a result of the employee’s implicit or explicit request when the employee was willing and able to continue providing services “Questions and Answers 24 of Communication 2021-31. The determination of whether a termination is involuntary is based on all facts and circumstances.
Specific situations addressed in Notice 2021-31 include the following:
- Retirement is generally not an involuntary termination of the employment relationship unless the facts indicate that the employee knew that the employer was about to terminate the employment relationship and the employee was willing and able to continue to provide services.
- The termination for an important reason includes an involuntary termination of the employment relationship (unless the cause is a “gross misconduct”).
- Resigning for “good reasons”, sometimes referred to as a constructive dismissal, is an involuntary termination of the employment relationship.
- Death is not an involuntary termination of employment in relation to the surviving spouse and their dependents.
- A termination of the employment relationship initiated by the employee due to inadequate childcare or other personal problems is generally not an involuntary termination.
- Failure to renew an employment contract would be an involuntary termination of the employment relationship if the employee were willing and able to continue working with or without a contract.
- If an employer significantly shortens an employee’s working hours, but the reduction in working hours does not result in a loss of coverage and the employee subsequently terminates the employment relationship, the termination would be involuntary.
An employer can require an employee to certify, or to certify himself, that the termination of the employment relationship is involuntary and that the employee is otherwise entitled to premium aid. An employer can rely on the employee’s certificate unless the employer is actually aware that the certificate is false. The employer must keep a copy of the self-certification or other evidence on their records showing that the dismissal was involuntary. These records are used to demonstrate the employer’s eligibility to receive the Award Assistance balance.
The “Summary of COBRA Reward Assistance Provisions Under the American Rescue Plan Act of 2021” published by DOL in April (click here) includes an “Qualified Person Application” to which the Worker / Qualified Beneficiary applies to activate one A series of checkboxes indicating that the employee (or his / her spouse or any eligible dependent child) is eligible for the COBRA grant and confirm that he / she meets all of the eligibility requirements. The employer fills out the part of the form that indicates the employer’s approval or rejection of the application and sends a copy of the form back to the applicant. This form should meet the requirement that a Qualified Beneficiary self-certify whether they are eligible.
In most cases, the employer and the employee / qualified beneficiary agree to classify the termination as involuntary or voluntary. However, one can imagine that situations will arise in which the parties do not agree:
- An employee resigns voluntarily and later asserts a “good reason” for the termination / constructive dismissal.
- An employee has a planned retirement date on May 1, 2021, but subsequently claims that he was “evicted”.
If an employee does not agree with the characterization of the termination by an employee as involuntary, this has the consequence that the employee and their spouse / dependent children are not entitled to the grant. In this case, the employer should notify the employee if the group health plan is subject to ERISA and allow the employee to appeal the decision as an adverse performance assessment.
2. Reduction of working hours
An employee may be eligible for a COBRA grant if the reduction in working hours that resulted in a loss of coverage is voluntary or involuntary. If an employee voluntarily cuts their working hours and loses health insurance due to inadequate childcare, the employee may be eligible for premium assistance. The IRS also makes it clear that reducing working hours due to vacation (expected to be returning to work) or a strike would potentially create a right to a COBRA grant.
3. Group health plans covered by the COBRA grant
In accordance with the legal language in ARPA, the IRS states that premium support must be provided for any group health plan that is not a health FSA. This contains:
- Standalone Dental
- Standalone vision
- Health Reimbursement Agreement (HRA)
- An individual insurance cover HRA (must be integrated into the individual health insurance cover)
Premium Assistance does not need to be provided for a Qualified Small Employer HRA (QSEHRA) as this is not a group health plan for COBRA purposes.
A basic COBRA rule is that a Qualified Beneficiary must be given the opportunity to continue any group health plan in which they were insured at the time of the qualifying event. In an unsubsidized setting, qualified beneficiaries often focus on continued medical care to protect against catastrophic health events, but may not choose to continue dental and vision care. Suppose a 100% subsidy is available. In this event, a Qualified Beneficiary who is eligible and who has previously chosen only medical coverage must be offered the opportunity to choose and are likely to choose dental and visual coverage under the ARPA during the extended term of office elects for the subsidy period.
The content of this article is intended to provide general guidance on the subject. A professional should be obtained about your particular circumstances.
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