Interpreting ARPA’s COBRA Subsidy: Part 2

This blog post is Part 2 of canvasing the IRS’ 41-page FAQs, Notice 2021-31 (the Notice) that provides guidance on the COBRA premium assistance program (Subsidy) created by the American Rescue Plan Act of 2021 (ARPA). To read Part 1 of this series, click here.


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

Who may qualify as an AEI? 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.


The Notice outlines the coverages available for COBRA Premium Assistance, including:

  • dental and vision plans.
  • retiree coverage offered under the same plan as the coverage offered to similarly situated active employees.
  • standard HRAs.
  • HRAs integrated with individual health insurance coverage (other than Medicare).

Coverage NOT eligible for COBRA premium assistance includes:

  • Health FSAs (other than an HRA that happens to be a health FSA).
  • Coverage with a premium greater than that applicable to the coverage under which an individual was enrolled at the time of the qualifying event.
    • This does not apply if the plan the individual was enrolled in is no longer available. In that case, the employer must allow the employee to enroll in the plan for active employees that is “most similar” to the discontinued plan, even if it is more expensive.
    • Additionally, the plan may allow an AEI to enroll in a more expensive plan during open enrollment in accordance with existing COBRA regulations.

The Notice points out that employers no longer subject to federal COBRA due to a decrease in the number of employees may still have obligations under ARPA.  Why? Because an employer’s status under COBRA is determined by the number of its employees in the preceding calendar year, but its obligation to provide COBRA is determined at the time of the qualifying event.

  • Example: ABC Employer has more than 20 employees in 2019, but fewer than 20 in 2020 and 2021.  The employer would be subject to COBRA in 2020 but not in 2021.  An employee has an involuntary termination of employment in November of 2020. The employer is required to provide the ARPA extended election and treat the employee as an AEI in 2021.


ARPA provides an extended election period for certain individuals who did not have an election of COBRA in effect on April 1, 2021, but who would be an AEI if COBRA were in effect.

  • The extended election period continues for 60 days after these individuals are provided notice and includes any coverage that the employee could have originally elected.
  • Example: ABC Employee is involuntarily termed, and could have elected medical or dental coverage at the time of termination.  The employee elects dental only; the employee must be allowed to elect medical coverage during the extended election period.


  • A person will cease to be an AEI on the date he or she becomes eligible for Medicare or other group health plan coverage (excluding coverage that only provides excepted benefits, coverage under a health FSA, or a QSEHRA).
  • The cutoff date is the date a person is or could have become covered on or after April 1, 2021 after the expiration of any applicable waiting period.
  • Example 1: an individual becomes an AEI on May 1, 2021 and elects COBRA.  The individual’s spouse becomes employed on June 1, 2021 and is eligible for family coverage beginning on July 1, 2021.  The individual would cease to be an AEI on July 1, 2021 (regardless of whether the spouse elects family coverage).
  • Example 2: in contrast, consider an employee whose termination of employment occurred in October of 2020.  Assume that the employee could have, but did not, enroll at that time under the special enrollment provisions of the spouse’s plan.  Under the Emergency Relief Notice provisions issued in response to COVID -19, the employee remains eligible for special enrollment in the spouse’s plan.  Since he could be covered under the plan as of April 1, 2021, he is not an AEI eligible for premium assistance.

In general, employers are unlikely to be aware of an employee’s eligibility for other coverage; this highlights the value of requiring employees to self-certify their status as AEIs.


The Notice provides details about how to receive premium assistance credit.  The credit may be claimed by:

  • A multiemployer (i.e. collectively bargained) plan covering two or more employers;
  • The common law employer maintaining the plan (a) that is subject to Federal COBRA, or (b) under which some or all of the coverage is not provided by insurance (AKA, a plan that is self-funded, in whole or in part).
  • The insurer providing the coverage to a small employer not subject to federal COBRA, pursuant to a state mini-COBRA law.

A governmental entity may be eligible to receive the credit.

In some cases, the credit may be claimed by a third party such as a PEO or section 3504 agent.   This may be the case if the third party is considered the plan sponsor and would normally receive COBRA premium directly from the qualified beneficiaries.  Employers who use such third parties services should confer with them regarding the premium assistance credit.

The credit may be claimed on the employer’s Quarterly Federal Tax Return.  Employers may reduce their federal employment tax deposits in anticipation of receiving the credit.  If the credit exceeds the available reduction in deposits, the employer may file Form 7200 to request an advance for the remaining credit (after the end of the semi-monthly payroll period in which the employer became entitled to the credit).

If an AEI fails to notify the employer that they are no longer eligible for the COBRA premium assistance due to eligibility for other group health plan coverage or Medicare, the employer is still entitled to the credit received for that period of ineligibility, unless the employer knew of the individual’s eligibility for the other coverage.


As noted, we have only scratched the surface of this dense and lengthy Notice.  Employers seeking more information should refer to the Notice itself and confer with counsel on additional questions.

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