The federal government has moved swiftly to implement the American Rescue Plan. New enhanced premium tax credits (PTC) became available through HealthCare.gov on April 1, 2021, alongside multiple rounds of technical guidance from the Centers for Medicare and Medicaid Services (CMS). On April 9, the Internal Revenue Service (IRS) issued a press release and fact sheet on its approach to relief from advance PTC reconciliation for 2020. And, on April 7, the Department of Labor (DOL) issued guidance and model notices to implement new COBRA continuation coverage subsidies for laid-off workers.
Swift implementation is important to provide relief to those facing financial challenges and because these changes are only temporary. The PTC reconciliation relief, for instance, is related to 2020 tax filings and must be communicated quickly to tax filers and preparers. And guidance on the COBRA subsidy can help people decide whether to enroll in COBRA coverage or a different source of coverage, such as marketplace coverage or Medicaid.
Relief From Premium Tax Credit Reconciliation For 2020
Most marketplace enrollees opt to receive their PTCs in advance, which lowers the amount they must pay each month throughout the plan year. The amount of advance PTC is based on an individual’s projected income when they apply for coverage. Then, at tax time, individuals “reconcile” the amount of advance PTC they received (based on estimated income) with their actual income (based on federal income data). Individuals do this by completing Form 8962 when they file their taxes. If actual income is higher than estimated, they may be required to repay all or part of the advance PTC to the federal government. This “clawback” results in a smaller tax refund or a larger balance owed to the IRS.
Recognizing the challenges with predicting income in 2020, the American Rescue Plan prevents those who underestimated their income from having to repay excess PTC. People may have received extra income due to, say, unexpected hazard pay for essential workers, extra shifts to cover for coworkers who were out sick or in quarantine, or unemployment benefits. By waiving this clawback requirement, there is no repayment requirement for tax year 2020. The American Rescue Plan thus holds consumers (at all income levels) who received ACA subsidies harmless from income fluctuations in 2020.
The IRS issued guidance on this on April 9. Those who owe excess advance PTC (because their income was higher than expected) do not need to complete Form 8962 or report excess advance PTC when filing 2020 taxes. The IRS will process tax returns without this form and reduce any amount that would have been owed in excess advance PTC to $0.
Those who already have filed their 2020 tax return (both with or without Form 8962) should not file an amended tax return or contact the IRS. Instead, the IRS will ignore Form 8962 when processing the tax return or adjust the amount owed by setting it to $0. No action is needed from the tax filer, and tax filers should disregard any letters about excess advance PTC for 2020. Those who already paid the amount owed in excess advance PTC will be reimbursed and should not file an amended tax return. Doing so is unnecessary, and the IRS expects to soon issue more details on its reimbursement process.
It is worth emphasizing that the PTC reconciliation process is unchanged for those whose income was lower than estimated or who did not receive some or all PTC in advance. Thus, if you thought your income would be higher than it ultimately was, you may be owed money from the government in PTC. By completing Form 8962, you can claim this net PTC and your tax refund for 2020 will be higher (or the amount you owe in taxes will be lower). If you are owed PTC, the IRS may send a letter asking for a missing Form 8962 or for more information to process your refund.
Guidance On COBRA Subsidy
COBRA continuation coverage stems from the Consolidated Omnibus Budget Reconciliation Act of 1986 which requires group health plans to temporarily continue group health coverage that otherwise might be terminated for qualifying individuals. This includes covered employees, spouses, former spouses, and dependent children. COBRA applies to employers with 20 or more employees, and many states have extended similar protections for smaller employees (i.e., employers with less than 20 employees). These state laws are often referred to as “mini-COBRA” laws.
While an important option for many people, enrollment in COBRA continuation coverage is often low because the individual is responsible for paying up to 102 percent of the cost of premiums for the group health plan. This cost—of full group health plan premiums without any employer contribution—is prohibitively expensive for many people.
The American Rescue Plan temporarily addresses this affordability challenge by fully subsidizing COBRA premiums for workers who are laid off or have reduced hours. Qualifying individuals will not have to pay premiums (or administrative fees) for COBRA continuation coverage. The subsidy became available on April 1 and extends through September 30, 2021.
The COBRA subsidy is available for any group health plan sponsored by an employer, union, or state or local government that is subject to COBRA. It is also available to those enrolled under state mini-COBRA laws. The employer or plan will pay the COBRA premiums and then receive a payroll tax credit for the amount of premium assistance provided. Employers or plans that fail to provide the COBRA subsidy may be subject to a tax of up to $100 per qualified beneficiary (no more than $200 per family) for each day of violating these requirements.
There are some restrictions on who qualifies for the COBRA subsidy. First, it is only available to individuals or family members who qualify for COBRA coverage because they have ben involuntarily terminated or had their hours reduced. A reduction in hours may be caused by a change in an employer’s hours of operations, a shift from full- to part-time status, a temporary leave of absence, or participation in a lawful labor strike. Importantly, people who qualify for COBRA continuation coverage for other reasons (such as a divorce) are not eligible for the COBRA subsidy and must pay full premiums. And those terminated for gross misconduct do not qualify for COBRA coverage or the subsidy.
Second, the COBRA subsidy is not available to those who are eligible for Medicare or another group health plan, including a plan from a new employer or through a spouse. (Group health plan coverage does not include excepted benefits coverage, a flexible spending arrangement, or a qualified small employer health reimbursement arrangement). Individuals who fail to notify their plan that they are no longer eligible for the COBRA subsidy (because they are eligible for one of these other types of coverage) may face financial penalties.
The COBRA subsidy is available to qualifying individuals who are currently enrolled in COBRA continuation coverage and those who become newly eligible over the next six months. If allowed by their employer, current enrollees have 90 days to enroll in a different plan and apply the COBRA subsidy towards that plan. However, the new plan cannot be any more expensive than the prior plan and must be offered to similarly situated active employees, among other restrictions.
The COBRA subsidy also extends to those who could have enrolled in COBRA continuation coverage in the past but did not, as well as those who previously enrolled but discontinued COBRA continuation coverage. Under the American Rescue Plan, these individuals (including any qualified dependents who may not have enrolled previously) may have an additional opportunity to elect COBRA continuation coverage that can be retroactive to April 1. This additional COBRA election period lasts for 60 days after the group health plan notifies the individual of the extended election period. DOL confirms that 1) employers must provide this notice by May 31; and 2) separate prior guidance providing flexibility regarding timely notices does not apply here (i.e., employers must send the notice as required).
Employers and group health plans must provide several new notices to those who become eligible for COBRA continuation coverage. Beyond the notice of the additional election period, this includes a general notice to all qualified beneficiaries and a notice that the COBRA subsidy is expiring. The expiration notice must be issued at least 15 days before the COBRA subsidy expires and include the date of expiration and information about enrolling in other coverage options (whether another group health plan, unsubsidized COBRA continuation coverage, Medicaid, or the marketplace). DOL generally identifies the information that must be included in the notices, clarifies again that the American Rescue Plan overrides prior guidance that gave employers flexibility to delay notices, and issued model notices to be used by employers.
Notices must include any forms needed to enroll in COBRA continuation coverage and confirm that an individual is eligible for the COBRA subsidy. Individuals who do not receive a form from their employer but who believe they are eligible for the subsidy should submit a request form to their employer. If they are eligible, their premiums will be treated as paid in full for the duration of their eligibility (meaning plans and insurers should not try to collect premiums or reimbursement from these individuals).
In general, the COBRA subsidy is available from April 1 to September 30. However, the subsidy could end before September 30 if an individual becomes eligible for another group health plan or Medicare, or if eligibility for COBRA continuation coverage expires. On the latter point, the availability of the COBRA subsidy does not extend the availability of COBRA continuation coverage itself. This means that an individual can apply the subsidy to COBRA continuation coverage through September 30, but only if they would otherwise have been eligible for coverage. If an individual’s COBRA continuation coverage is set to expire in July 2021, the American Rescue Plan does not require it to be extended through the end of September simply because the subsidy is available.
Once the COBRA subsidy ends, individuals may be eligible for Medicaid or a special enrollment period through the marketplace. To my knowledge, CMS has not formally announced a marketplace special enrollment opportunity for those losing the COBRA subsidy, but the Biden administration is expected to allow this option. DOL’s guidance suggests as much. Members of Congress are pushing for this clarity, and such a policy could be announced soon.
Individuals currently enrolled in marketplace coverage or Medicaid can opt to enroll in COBRA continuation coverage and receive the COBRA subsidy. However, DOL urges those enrolled in marketplace coverage to inform the marketplace of this shift. Doing so is important so consumers do not inadvertently continue to receive PTC that they may owe back during tax time in 2022 (because of the reconciliation process discussed above). Those who enrolled in individual coverage outside of the marketplace should inform their insurance company.