Calculation of Cobra Premium Assistance Credit
Q-63. As a general rule, what is the amount of the premium assistance credit for a quarter?
A-63. If the employer does not subsidize COBRA premium costs for similarly situated qualified beneficiaries who are not Assistance Eligible Individuals, the credit for a quarter is the amount equal to the premiums not paid by Assistance Eligible Individuals for COBRA continuation coverage due to the application of § 9501(a)(1) of the ARP for the quarter. In this case, the amount of the premiums not paid by the Assistance Eligible Individuals is the premium amount charged for COBRA continuation coverage to other similarly situated covered employees and qualified beneficiaries (for example, coverage for a single individual, individual plus one, or family who are not Assistance Eligible Individuals). The premium amount also includes any administrative costs otherwise allowed (that is, generally 102 percent of the applicable premium under § 4980B(f)(4)) (see Q&A-64).
Q-64. What is the amount of the premium assistance credit if the employer subsidizes the COBRA premium costs for similarly situated covered employees and qualified beneficiaries who are not Assistance Eligible Individuals?
A-64. The amount of the credit is the premium that would have been charged to an Assistance Eligible Individual in the absence of the premium assistance, and does not include any amount of subsidy that the employer would have otherwise provided. Thus, absent the premium assistance, if the premium that the employer would have charged to an Assistance Eligible Individual is less than the maximum COBRA premium—for example, if the employer would have subsidized the coverage by paying all or part of the premium—the credit is equal to the amount that the employer actually would have charged to the Assistance Eligible Individual. For the following examples, assume 102 percent of the applicable premium for COBRA continuation coverage is $1,000 per month, and the premium payee is the common law employer maintaining the plan.
Example 1: Absent the COBRA premium assistance, the common law employer requires individuals electing COBRA continuation coverage to pay $500 per month. The credit is $500 per month.
Example 2: The common law employer requires active employees to pay $200 per month for health coverage. Absent the COBRA premium assistance, for involuntarily terminated employees, severance benefits include continued health coverage at the cost of $200 per month for three months after termination. After the three-month severance period, the terminated employee must pay $1,000 per month for the remainder of COBRA continuation coverage. The common law employer considers the loss of coverage to occur on the last day coverage is in effect before the severance benefits begin; that is, the common law employer considers the three-month severance period (during which the employer pays $800 toward the cost of the terminated employee’s COBRA continuation coverage) to be part of the terminated employee’s COBRA continuation period of coverage. A potential Assistance Eligible Individual has an involuntary termination of employment as of April 1, 2021, and makes the COBRA continuation election effective as of that date. For April, May, and June 2021, the credit is $200 per month. For July, August, and September 2021, the credit is $1,000 per month.
Example 3: Same facts as Example 2, except that the common law employer considers the loss of health coverage and the beginning of the terminated employee’s COBRA continuation period of coverage to occur at the end of the three-month severance period. For the first three months after termination of employment, the terminated employee is not eligible for COBRA continuation coverage and is not an Assistance Eligible Individual. Instead, the employee pays $200 for coverage that is not a premium for COBRA continuation coverage. The employee receives severance benefits for health coverage beginning on April 1, 2021, and then elects COBRA continuation coverage beginning on July 1, 2021 (after the end of the three-month severance period) and becomes an Assistance Eligible Individual. The credit is $0 per month for April, May, and June 2021, and $1,000 per month for July, August, and September 2021.
Example 4: Same facts as Example 2, except that for involuntarily terminated employees, the severance benefits include continued health coverage at no cost for the three months after termination of employment.
Because the monthly premium (absent the COBRA premium assistance) during April, May, and June 2021 is zero, COBRA premium assistance is not available and there is no credit for those months. After the severance period, the terminated employee is entitled to COBRA continuation coverage with COBRA premium assistance for July, August, and September 2021. The credit is $1,000 per month for July, August, and September 2021.
Q-65. If a plan that previously charged less than the maximum premium allowed under the COBRA continuation provisions increases the premium for similarly situated covered employees and qualified beneficiaries pursuant to § 54.4980B-8, Q&A-2(b)(1) (or similar authority under comparable State law or other Federal law), does the COBRA premium assistance apply to the increased premium amount?
A-65. Yes.
Example: Under the plan, 102 percent of the applicable premium for COBRA continuation coverage is $1,000 per month. For periods of coverage before April 1, 2021, the plan charged $500 per month for COBRA continuation coverage. Pursuant to § 54.4980B-8, Q&A-2(b)(1) and the applicable notice requirements, beginning April 1, 2021, the plan charges $1,000 per month for COBRA continuation coverage for all covered employees and qualified beneficiaries. The COBRA premium assistance and the premium assistance credit are $1,000 per Assistance Eligible Individual per month for the coverage beginning April 1, 2021.
Q-66. If a plan that previously charged less than the maximum premium allowed under the COBRA continuation provisions increases the premium pursuant to § 54.4980B-8, Q&A-2(b)(1), and the employer provides a separate taxable payment to the Assistance Eligible Individual, does the premium assistance credit apply to the increased premium amount?
A-66. Yes.
Example: Under a group health plan, 102 percent of the applicable premium for COBRA continuation coverage is $1,000 per month. Before April 1, 2021, the plan charged $400 per month for COBRA continuation coverage. Pursuant to § 54.4980B-8, Q&A-2(b)(1), and the applicable notice requirements, the plan charges all covered employees and qualified beneficiaries $1,000 per month for COBRA continuation coverage for periods of coverage beginning April 1, 2021. In addition, beginning April 1, 2021, the employer provides a taxable severance benefit of $600 per month to employees who are Assistance Eligible Individuals. An Assistance Eligible Individual is entitled to COBRA continuation coverage without payment of any premium. The credit is $1,000.
Q-67. If COBRA continuation coverage is provided under a State program that provides comparable continuation coverage, does the premium assistance credit apply to portions of the premium attributable to COBRA continuation coverage for those individuals who would not be qualified beneficiaries under Federal COBRA?
A-67. No. While § 9501(a)(9)(B) of the ARP defines the COBRA continuation coverage eligible for COBRA premium assistance to include comparable State continuation coverage, a qualified beneficiary is defined under § 9501(a)(9)(E) by crossreference to § 607(3) of ERISA. Thus, COBRA premium assistance is limited to the premium attributable to the coverage of the employee who was involuntarily terminated (other than by reason of such employee’s gross misconduct) or had a reduction in hours as a qualifying event and that employee’s spouse or dependent children who are qualified beneficiaries under Federal COBRA, even if the State law requires a group health plan to provide continuation coverage to a broader group of individuals (for example, another member of the individual’s household who is not the spouse or a dependent child).
Q-68. If COBRA continuation coverage of one or more Assistance Eligible Individuals also covers one or more individuals who are not Assistance Eligible Individuals, how is the premium for the COBRA continuation coverage allocated among the Assistance Eligible Individuals and the other individuals in determining the premium assistance credit?
A-68. The premium amounts for COBRA continuation coverage for one or more individuals who are Assistance Eligible Individuals and one or more individuals who are not Assistance Eligible Individuals are allocated first to the premiums for the Assistance Eligible Individuals, based on the cost of COBRA continuation coverage (without COBRA premium assistance) for only Assistance Eligible Individuals, and then to the premiums for the individuals who are not Assistance Eligible Individuals. Thus, if the total cost of the coverage for all covered individuals does not exceed the premium costs for the Assistance Eligible Individuals alone, then the premium for the individual who is not an Assistance Eligible Individual is zero, and the COBRA premium assistance is the full applicable premium amount of the COBRA continuation coverage. If the coverage of an individual who is not an Assistance Eligible Individual increases the total COBRA premium for all individuals, that incremental additional cost is not COBRA premium assistance for purposes of the credit.
Example 1: An employee and the employee’s two dependent children are Assistance Eligible Individuals and have COBRA continuation coverage. COBRA continuation coverage also covers an individual who lives in the same household who is not an Assistance Eligible Individual. The amount the plan requires to be paid for COBRA continuation coverage for self-plus-two-or-more-dependents (which includes the individual who is not an Assistance Eligible Individual) is $1,000 per month.
The amount the employee would pay (absent the COBRA premium assistance) for coverage for the employee and the two children (the Assistance Eligible Individuals) for COBRA continuation coverage is $1,000 per month. The additional premium amount for coverage of the individual who is not an Assistance Eligible Individual is $0 per month. The employee is entitled to apply the COBRA premium assistance for the full $1,000 premium amount per month. The credit is $1,000 per month.
Example 2: Same facts as Example 1, except the employee has only one dependent child, and the plan charges $800 per month for self-plus-one-dependent COBRA continuation coverage. The portion of the premium attributable to coverage for the individual and the individual’s dependent child (both Assistance Eligible Individuals) is $800 per month.
The employee is entitled to apply the COBRA premium assistance to the $800 per month attributable to the Assistance Eligible Individuals. The incremental amount the employee pays for COBRA continuation coverage for the individual who is not an Assistance Eligible Individual is $200 per month, so the employee’s total premium payment is $200 per month. The credit is $800 per month.
Example 3: An employee is an Assistance Eligible Individual who has self-only coverage that would cost $450 per month (absent the COBRA premium assistance). During the ARP extended election period, the plan has an open enrollment period during which it allows active employees and qualified beneficiaries to add spouses and dependents to their health coverage. The employee adds the employee’s spouse and dependent child, who were not covered before the employee’s qualifying event, to the employee’s COBRA continuation coverage. Without regard to the COBRA premium assistance, COBRA continuation coverage for self-plus-two-or-more-dependents is $1,000 per month.
The spouse and the dependent child are not Assistance Eligible Individuals because they were not covered by the plan on the day before the employee’s qualifying event. The amount the employee pays for the spouse and the dependent child is $550 per month ($1,000 less $450). The employee is entitled to COBRA premium assistance with respect to $450 per month. The credit is $450 per month.
Q-69. Does the premium assistance apply to the increased premium if the plan, in compliance with § 54.4980B-8, Q&A-2(c), allows the Assistance Eligible Individual to change coverage from the benefit package that covered the individual before a reduction in hours or involuntary termination of employment to a different benefit package with a higher applicable premium that allows for an increase in the premium amount charged to the Assistance Eligible Individual?
A-69. Yes. (But see Q&A-42 regarding the ability of an Assistance Eligible Individual to enroll in coverage under a plan that is different than the coverage in which the individual was enrolled at the time of the qualifying event pursuant to § 9501(a)(1)(B) of the ARP.)
Q-70. How is the premium assistance credit calculated for an individual coverage health HRA?
A-70. The credit for an individual coverage HRA is limited to 102 percent of the amount actually reimbursed with respect to an Assistance Eligible Individual.
Example: An individual coverage HRA provides a monthly benefit of the lesser of the premium for the individual health insurance coverage purchased by the employee or $1,000 and charges the maximum allowable administrative fee for COBRA continuation coverage, for a total maximum COBRA premium of $1,020. Individual A and Individual B are Assistance Eligible Individuals and are enrolled in COBRA continuation coverage. For April 2021, Individual A is reimbursed for a premium payment for individual health insurance coverage of $900; Individual B is reimbursed for $1,000 of a $2,000 premium payment for individual health insurance coverage. The credit for April is $918 with respect to Individual A and $1,020 with respect to Individual B.