COBRA premium assistance credit under ARPA clarified

By Paul Bonner

In 86 questions and answers, the IRS in Notice 2021-31 gave employers, health care plans, and insurers background and clarifications on how to provide premium assistance for COBRA health care continuation benefits to affected employees and other beneficiaries and claim a corresponding tax credit.

The temporary premium assistance and credit are available under the American Rescue Plan Act (ARPA), P.L. 117-2, which provides for a temporary 100% reduction in COBRA premiums for individuals and their families who elect COBRA continuation coverage due to a loss in group health coverage as a result of a reduction in work hours or involuntary termination of their employment. ARPA also provides an extended COBRA election period. The employer, insurer, or multiemployer plan to which the COBRA continuation premiums are payable then claims a refundable tax credit against its share of Medicare taxes (Sec. 6432, added by ARPA).

COBRA (Consolidated Omnibus Budget Reconciliation Act of 1985, P.L. 99-272) generally provides certain employees, retirees, and their spouses, former spouses, and dependents who lose group health coverage a right to temporarily continue it at group rates, the IRS explained in an accompanying news release (IR-2021-115). It generally covers private-sector employers of 20 or more full- and part-time employees, employee organizations, and federal, state, and local government workers.

The premium assistance is available only for periods of COBRA coverage beginning after April 1, 2021, but not for periods beginning after Sept. 30, 2021. It does not extend to individuals eligible for coverage under another group plan or Medicare. An individual becomes an “assistance eligible individual” by an involuntary termination (other than for gross misconduct) or reduction in hours of a covered employee’s employment during the period April 1, 2021, to Sept. 30, 2021, who is eligible for and elects COBRA continuation coverage. Qualified beneficiaries include the spouse and dependent children of the covered employee who are also covered under the group health plan.

Under Sec. 139I, the premium assistance is excluded from an individual’s gross income. The employer, plan, or insurer claims the tax credit in the amount of assistance provided in each calendar quarter against the Medicare taxes due for that quarter or as a refundable overpayment and increases its gross income by the amount of the credit in the tax year that includes the last day of any calendar quarter with respect to which the credit is allowed.

The premium assistance and credit also generally apply to comparable state programs providing continuation coverage, known as “mini-COBRA,” which are also addressed in Tuesday’s guidance. Topics covered include certification of eligibility; recordkeeping; disqualifying other coverage; loss of coverage for other reasons; covered retirees; determining a qualifying involuntary termination or reduction in hours; types of coverage eligible for premium assistance; and when an assistance period begins and ends.

Paul Bonner ( is a JofA senior editor.

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