Interpreting ARPA’s COBRA Subsidy: Part 1

The IRS published its 41-page FAQs, Notice 2021-31 (the Notice) which provides answers to many questions surrounding the COBRA premium assistance program (Subsidy) created by the American Rescue plan Act of 2021 (ARPA).

The Notice provides guidance on several aspects of the Subsidy. As this Notice is a novella of FAQs, we’ll break it into two blog posts. Part 1 today, Part 2 later this week. The Notice includes over 80 questions; we won’t cover every one of them in this blog series, but will instead focus on areas of ambiguity left by Congress for the IRS to clarify.


ARPA provides for a 100% COBRA premium subsidy for Assistance Eligible Individuals (AEIs).  AEI’s COBRA premium is paid by the employer providing the coverage,* and then reimbursed through credits to Medicare taxes the employer would otherwise owe.

Who can qualify as an AEI? 

  • The statute provides that an AEI is a person who is a COBRA qualified beneficiary as a result of an employee’s reduction in hours or involuntary termination of employment, and elects COBRA.
  • An individual’s employment can end in a variety of ways, including a simple termination of employment by an employer. After this, however, the floodgate opens, and the questions roll in. A primary question: what is considered “involuntary employment?”


An employee who quits a job may be an AEI if the individual does so for good reason due to employer action resulting in a material negative change in the employment relationship for the employee.**

  • This may include a material change in the geographic location of the employee’s work. It may also include resignations due to concerns about workplace safety, but only if the employee can demonstrate that the conditions resulted in a material negative change in the employment relationship sufficient to constitute a constructive discharge.
  • In contrast, a departure due to the personal circumstances of the employee, such as a health condition of the employee or a family member, inability to locate daycare, or other similar issues, generally will not be considered a constructive discharge unless the employer’s failed to take a required action or provide a reasonable accommodation.

If the employer reduces an employee’s hours, and the employee quits in response, this is also considered an involuntary discharge, even if the reduction in hours did not cause a loss of coverage.

If a termination is designated as voluntary or as a resignation, but the facts and circumstances indicate that the resignation was in lieu of discharge, the termination is involuntary.

The question of whether an employer’s decision not to renew an employment contract is complicated.

  • If the employee was willing and able to continue the employment relationship (with or without a Involuntary contract), the termination would be involuntary.
  • However, if the contract was for specified services over a set term, and the parties did not anticipate contract renewal, the termination of the contract upon completion is not an involuntary termination of employment.

Retirement is normally considered a voluntary termination, but a forced retirement would be considered involuntary.

  • Termination due to certain types of early retirement programs*** will also be considered involuntary.
  • Employers: confer with counsel to determine whether retirement programs will cause former employees to be treated as AEIs.

The death of an employee is not considered an involuntary termination of employment, and the employee’s spouse and dependent children would not qualify as AEIs.

  • However, if an employee dies after his spouse and dependents become AEIs, they will not cease to be AEIs because of the employee’s death.


A reduction in hours that causes loss of coverage may also qualify a person as an AEI.

  • This is true regardless of whether the reduction was voluntary or involuntary.
  • This includes reductions due to furloughs (temporary loss of coverage with the anticipation that the employee will return to full-time employment); and reductions due to lawful strikes and lockouts.

An employee who terminates employment because a child is unable to be in school school or at a childcare facility due to COVID-19 is not an AEI, unless the employer and employee intend to maintain the employment relationship. If this is the case, the situation is considered a temporary reduction in hours, which may allow the employee to qualify as an AEI.


Employers may require individuals to certify they:

  • have lost coverage due to a reduction in hours or involuntary termination of employment;
  • are not eligible for other group health plan coverage; and
  • are not eligible for Medicare.

Employers may rely on the self-certification to substantiate their claims for tax credits unless they have actual knowledge that an individual’s attestation is incorrect.

Employers may use other methods to document claims for tax credits (such as its internal records) but in any case, the employer must maintain adequate documentation.

Digest this blog and stay tuned for Part 2 this week, where we summarize: coverages available for the Subsidy; extended election periods; eligibility for other coverage; and claiming the tax credit.

*or the insurance company in some cases

**analogous to a constructive discharge

***qualifying under the Internal revenue Code as non-deferred compensation

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