On May 18, 2021, the Internal Revenue Service (IRS) released Notice 2021-31 (the "Notice") providing guidance in Q&A format on the application of the temporary COBRA premium assistance provisions of the American Rescue Plan Act of 2021 (ARP). 1


Section 9501 of the ARP provides a temporary 100 percent COBRA premium subsidy for up to six months of COBRA continuation coverage from April 1, 2021, through September 30, 2021, and additional COBRA enrollment rights for certain "Assistance Eligible Individuals" (discussed below). The premium subsidy is excluded from an individual's gross income. The failure to treat an Assistance Eligible Individual as having paid the full premium is a failure to satisfy the requirements under Section 4980B of the Internal Revenue Code and may result in the imposition of excise taxes.

The employer (or the plan or insurer, as applicable, depending on the type of plan) is entitled to a refundable tax credit against its share of Medicare taxes for the amount of the premium subsidy (or, in certain cases, a refund of overpayments).

Assistance Eligible Individuals are individuals (i.e., employees and their eligible spouse and dependents) who lose or lost group health plan coverage due to a reduction in hours or involuntary termination of employment (other than for gross misconduct) and are, or could have been, eligible for COBRA between April 1, 2021, and September 30, 2021 (but are not eligible for coverage under another group health plan or Medicare). Assistance Eligible Individuals also include individuals who would be an Assistance Eligible Individual if they had a COBRA continuation coverage election in effect on April 1, 2021, or who previously elected COBRA continuation coverage and discontinued that coverage before April 1, 2021, thereby providing certain individuals with a second chance to make their COBRA elections or the ability to reenroll, so long as their COBRA continuation period has not expired (and they are not eligible for coverage under another group health plan or Medicare).

The premium subsidy ends if the individual is eligible for coverage under another group health plan or Medicare. The onus is on Assistance Eligible Individuals to notify the group health plan if they become eligible for such other coverage and the failure to do so can result in a tax penalty to the individual.

IRS Notice 2021-31

The 86 questions and answers in the Notice are intended to address many issues that have arisen with respect to the COBRA premium subsidy under the ARP, including, among other things, eligibility (including when a termination of employment is considered involuntary), eligible coverage, the premium subsidy period, how to calculate and claim the credit (including the impact of any employer subsidies on COBRA premiums), and other information related to understanding the premium subsidy and credit. The Notice generally provides more detail than the FAQs issued by the Department of Labor on April 7, 2021, and includes numerous examples of the practical application of the premium assistance and credit.

Practical Considerations

In light of the temporary premium subsidy provided under the ARP, plan sponsors should consider the following:

  • Which individuals (i.e., employees and their eligible spouse and dependents) had a loss of coverage on or after October 1, 2019, due to an involuntary termination of employment or a reduction in work hours and then send a notice regarding the special enrollment period and the premium subsidy (the Department of Labor has released model COBRA notices for this purpose) to each such affected individual by May 31, 2021 (failure to do so can result in excise taxes).
  • Whether any changes need to be made to COBRA-related language in separation/severance agreements and/or severance plans/policies to take into account the temporary 100 percent premium subsidy.
  • The potential impact on insurance and stop-loss coverage given the potential increase in the number of individuals electing COBRA coverage.


1  Note that the premium assistance is also available for continuation coverage under certain state laws, but the extended election period applies only to a group health plan that is subject to federal COBRA, unless a state law or program provides for a similar extended election right.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.