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May 20, 2021

COBRA Update: IRS Issues New FAQ Guidance on ARPA Premium Subsidies & Extended Election Period

The American Rescue Plan Act of 2021 (ARPA) provides for a temporary 100 percent reduction in the premium otherwise payable by certain individuals and their families who elect COBRA continuation coverage under federal law. Premium assistance is also available to individuals enrolled in comparable continuation health coverage under state law, often referred to as “mini COBRA.

On May 18, 2021, the IRS issued guidance that provides greater clarity to employers administering the new premium assistance requirements under ARPA.1

Notice 2021-312 contains 86 questions and answers pertaining to the administration of the ARPA COBRA premium subsidy, including:

  • Eligibility for premium assistance
  • When a reduction in hours affects premium assistance eligibility
  • How to determine whether a termination is involuntary
  • Whether and, if so, under what circumstances, dental-only, vision-only, HRA, and retiree plan coverage is eligible for premium assistance
  • Information relating to the months during which premium assistance is available
  • Extended election periods
  • Information about how to calculate and claim the credit

Notice 2021-31 tracks prior IRS guidance issued in 2009 that defined involuntary terminations for purposes of COBRA subsidies provided under a similar law following the 2008 recession; employers that have been applying the 2009 guidance to resolve grey area termination questions will be well positioned to continuing administering ARPA under the new guidance. The IRS has once again set forth a “facts and circumstances” test, defining an involuntary termination as the employer’s independent exercise of its unilateral authority to terminate the employment relationship, other than due to the employee’s implicit or explicit request, where the employee was otherwise willing and able to continue performing services.

Although the IRS did not address every issue that has been vexing practitioners (and indicated additional guidance is forthcoming), Notice 2021-31 provides helpful answers to the following questions:

  • Can employers require individuals to attest to premium assistance eligibility?
    • Yes. Employers may require individuals to attest that they are eligible for COBRA continuation coverage due to a reduction in hours or involuntary termination of employment and as to their eligibility for disqualifying group health plan coverage or Medicare. Employers must retain the individual’s attestation or other documentation to substantiate the individual’s eligibility for premium assistance and may rely upon the attestation unless the employer has actual knowledge that the attestation is incorrect.
  • Is premium assistance available for continuation coverage during extended periods of coverage?
    • Yes. If the original qualifying event was a reduction in hours or an involuntary termination of employment, COBRA premium assistance is available to individuals who have elected and remained on COBRA continuation coverage for an extended period due to a disability determination, second qualifying event, or an extension under state mini-COBRA, to the extent the additional periods of coverage fall between April 1, 2021, and September 30, 2021.
  • Does an offer of retiree coverage affect an individual’s eligibility for premium assistance?  
    • If the retiree plan and the plan for active employees (under which continuation coverage is offered) are separate group health plans under applicable law, an offer of retiree coverage renders the individual ineligible for premium assistance. If the retiree coverage is offered under the same group health plan as the coverage made available to similarly situated active employees, the retiree coverage may be eligible for premium assistance.
  • Are retirements and resignations considered voluntary terminations?
    • Generally, yes, but such situations should be closely reviewed before the ARPA subsidy is denied. The IRS cautioned that a termination designated as voluntary or as a resignation can be an involuntary termination for purposes of ARPA if the facts and circumstances indicate that the employee was willing and able to continue performing services. For retirements, the FAQs clarify that if the employee had knowledge that the employee would be terminated absent the retirement, the retirement would be involuntary for purposes of ARPA. For resignations, the Notice 2021-31 clarifies that resignations can be considered involuntary if the facts indicate that the employer’s actions, or inactions, resulted in a material negative change in the employment relationship analogous to a constructive discharge (e.g., reductions in pay, reductions in hours, or relocations).
  • What about contract employees whose contract has expired?
    • An employer’s decision not to renew an employee’s contract will be considered an involuntary termination of employment if the employee was otherwise willing and able to continue the employment relationship and was willing either to execute a contract with terms similar to those of the expiring contract or to continue employment without a contract. However, if the employer and employee understood at the time they entered into the expiring contract, and at all times when services were being performed, that the contract was for specified services over a set term and would not be renewed, the completion of the contract without it being renewed is not an involuntary termination of employment.
  • If employees resign for COVID-19-related reasons, are they entitled to the ARPA subsidy?
    • Generally, no. But Notice 2021-31 clarifies that certain situations could be considered involuntary terminations that are subsidy eligible. For example, if an employee resigns due to concerns about a health condition of the employee or a family member, the inability to obtain childcare, or other “similar issues,” the employer’s failure to either take a required action or provide a reasonable accommodation could cause the resignation to be involuntary for purposes of ARPA.
  • I understand that ARPA also applies to employees who experienced a reduction in hours. Does this include employee-initiated and other voluntary reductions in hours?
    • Yes. Notice 2021-31 clarifies that all reductions in hours render individuals subsidy eligible, regardless of whether the reduction in hours is voluntary or involuntary.
  • Do the ARPA premium subsidy and extended election period requirements apply to dental and vision plans? What about HRAs?
    • Yes. ARPA applies to all group health plans subject to COBRA (except health flexible spending accounts (HFSAs)), which includes dental-only and vision-only plans (even those that are employee-pay-all for active coverage). Health reimbursement accounts (HRAs) are also subject to ARPA, unless they qualify for a limited exception by meeting the definition of an HFSA under IRS rules.
  • What if the group health plan under which the assistance eligible employee was covered has been terminated?  
    • If an employer no longer offers the health plan that previously covered the eligible individual, the individual must be offered the opportunity to elect the plan that a similarly situated active employee would have been offered that is most similar to the previous plan that covered the individual, even if the premium for the plan is greater than the premium for the previous plan. In this case, the other coverage elected by the individual is eligible for the COBRA premium assistance, regardless of the premium for that coverage.

Action Steps

Employers and COBRA administrators should review their current ARPA premium subsidy compliance plan to ensure that it is consistent with the guidance provided in Notice 2021-31, focusing, in particular, on the guidance pertaining to involuntary terminations for which only outdated guidance was previously available.

If you have any questions regarding the content of this alert, please contact Art Marrapese, Employee Benefits Practice Area chair, at; Ray McCabe, partner, at, or another member of the firm’s Employee Benefits Practice Area.

We also have a specific team of Barclay Damon attorneys who are actively working on assessing regulatory, legislative, and other governmental updates related to COVID-19 and who are prepared to assist clients. Please contact Yvonne Hennessey, COVID-19 Response Team leader, at or any member of the COVID-19 Response Team at

1 As discussed in our prior alert, ARPA requires employers to provide 100 percent COBRA premium subsidies beginning April 1, 2021, through September 30, 2021, for certain employees who experienced an involuntary termination of employment or reduction in hours. ARPA also requires employers to offer a new COBRA “extended election period” for employees who previously failed to elect or dropped COBRA coverage. Employers can claim a quarterly tax credit equal to the amount of subsidies provided.


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