Health and Welfare

IRS Provides COBRA Coverage Clarifications

The IRS has issued Notice 2021-58, which clarifies the application of extension under the “Joint Notification of Extensions of Certain Timeframes for Employee Benefit Plans, Participants, and Beneficiaries Affected by the COVID-19 Outbreak” and additional guidance issued by the Department of Labor’s Emergency Relief Notices. Moreover, this notice addresses the interaction between the Emergency Relief Notices and COBRA premium assistance available under the American Rescue Plan Act (ARPA).

Notice 2021-58 clarifies that the disregarded period for an individual to elect COBRA continuation coverage runs concurrent to the disregarded period to make the premium payment. Individuals generally have 60 days to elect COBRA and an additional 45 days to pay the premium. The Notices provide that if an individual elects COBRA continuation coverage within the 60-day period, the individual will have one year and 45 days after the date of the COBRA election to make the initial COBRA premium payment. However, if the individual elects COBRA continuation coverage outside of the initial 60-day COBRA election time frame, the individual will have one year and 105 days after the date the COBRA notice was provided to make the initial COBRA premium payment. Relating to subsequent premium payments, Notice 2021-58 provides that an individual has a maximum period of one year from the date the payment originally would have been due, including any applicable 30-day grace period.

The guidance also offers transition relief to those individuals who made an election outside of the initial 60-day period and whose payment is due before November 1, 2021. Under the transition relief, the premium payment is not required to be made before November 1, 2021, even if November 1, 2021, is more than one year and 105 days after the date the election notice was received. The transition relief applies so long as the individual makes the initial payment within one year and 45 days after the date of the election.

Notice 2021-58 reiterates that the extensions under the Emergency Relief Notices do not apply to the COBRA subsidy notices required under the ARPA or to the election of COBRA continuation coverage under the ARPA. Individuals may retroactively elect COBRA continuation coverage but will not be eligible for the COBRA subsidy.

Finally, the notice offers various examples of applying the extension.


Barb Yearout Discusses Chard Snyder’s Sponsorship of the CancerFree KIDS 100 Mile Challenge

Barb Yearout, president of Chard Snyder, an Ascensus company, discussed Chard Snyder’s sponsorship of the CancerFree KIDS 100 Mile Challenge on WKRC Cincinnati’s What’s Happening in Health.​​

Yearout talks about the importance of ​CancerFree KIDS’ mission, along with  Chard Snyder’s past and current support for the organization. She also notes how the 100 Mile Challenge can be used as a starting point to build and maintain a healthy lifestyle.

You may watch the clip here; the segment begins at 30:50.

 


Barb Yearout Explains HSA Investment Options

Barb Yearout, president of Chard Snyder, an Ascensus company, contributed content about how individuals can make the most of their HSA accounts for investment ​purposes​ to the Cincinnati Business Courier.​​

“The majority of HSA account​ holders still think of an HSA as a spending vehicle instead of a savings tool,” says Yearout. “This means they could miss out on important tax advantages and the opportunity to save for future health care expenses.” She goes on to discuss potential HSA investment options, rules for when HSA balances may be invested, and investment contribution limits.​​


IRS Issues Additional Guidance on Premium Assistance for COBRA Benefits

The IRS has issued Notice 2021-46, which provides additional guidance affecting the application of the American Rescue Plan Act of 2021 on COBRA continuation coverage. The notice primarily focuses on state mini-COBRA provisions and the premium subsidy credit as follows.

State Mini-COBRA

  • An individual is eligible for premium assistance if the original 18-month COBRA continuation coverage period has expired and the individual is eligible for an extension because of a second qualifying event, disability, or state mini-COBRA and the extended period falls between April 1, 2021, and September 30, 2021.
  • State law that provides continuation coverage only for employees of a state or local government unit is considered comparable coverage and qualifies an assistance-eligible individual to premium assistance.

Premium Subsidy Credit

  • The common law employer eligible for the premium subsidy is the common law employer of the assistance-eligible individual.
  • If an employer is subject to COBRA and state mini-COBRA continuation coverage, the employer is eligible for the premium subsidy even if an assistance-eligible individual is required to pay the premiums directly to an insurer after COBRA ends. The insurer is not entitled to claim the COBRA premium assistance credit.
  • If a group health plan, other than a multiemployer plan, is subject to COBRA continuation coverage, but covers employees of different common law employers that are members of a single controlled group, the common law employer of each assistance-eligible individual is entitled to claim the premium subsidy.
  • An entity that provides health coverage to employees of another entity, but that is not the third-party payer of the employee’s wages is not entitled to the COBRA premium assistance credit.
  • If an assistance-eligible individual would have been required to remit COBRA premium payments to a state agency that is obligated to make COBRA continuation coverage available to employees of state and local governments, the state agency—not the employer—is entitled to receive the premium assistance credit.
  • An employer that offers health coverage through the small business health options program is entitled to claim the premium assistance credit if four conditions are met: 1) the employer must participate in the Small Business Health Options Program (SHOP) exchange; 2) the SHOP exchange provides the participating employer with a single premium invoice; 3) there is an agreement for the employer to pay all COBRA premiums to the SHOP exchange; and 4) the participating employer would have received the state mini-COBRA premiums directly from the assistance-eligible individuals were it not for the COBRA premium assistance.

Miscellaneous

If an assistance-eligible individual elected COBRA continuation coverage for dental or vision-only coverage and subsequently becomes eligible to enroll in other disqualifying group health plan coverage or Medicare that does not offer dental or vision coverage, the individual’s premium assistance ends even if the other coverage does not include all of the benefits.


Several Health Savings Bills Proposed

Senator Ben Sasse (R-NE) recently introduced two bills aimed at providing more flexibility for the use of health savings accounts (HSAs). Senate bill 2113 proposes to expand permissible distributions from an employee’s health flexible spending arrangement or health reimbursement arrangement to the employee’s HSA. Senate bill 2099 proposes to make HSAs more broadly available by removing the requirement that individuals be enrolled in a high deductible health plan. Further details of these proposals have not yet been made available.

A third bill has been introduced by Senator John Kennedy (R-LA). The Telehealth HSA Act would allow high deductible health plans to provide telehealth services before meeting the plan deductible without affecting HSA eligibility. Currently, employees may need to pay out of pocket for such services.

All three bills have been referred to the Senate Finance Committee for further consideration.


Supreme Court Leaves Affordable Care Act In Place

On June 17, 2021, the United States Supreme Court held that the plaintiffs did not have standing to pursue an action under the Patient Protection and Affordable Care Act (PPACA) because the individual mandate is unenforceable and, as such, “unenforceable language is insufficient to establish standing.” Regarding the states, the Supreme Court held that the “pocketbook injuries” cannot be traced to the government’s unlawful conduct. The Supreme Court failed to consider whether reducing the penalty to zero rendered the individual mandate unconstitutional and, in turn, if the individual mandate is unconstitutional, whether the individual mandate is severable from the remainder of the PPACA.

The lawsuit was narrowly centered around the individual mandate, which requires an individual to enroll in health coverage for the year or pay a penalty. In 2017, Congress passed the Tax Cuts and Jobs Act, which reduced the tax imposed by the individual mandate to zero effective January 1, 2019. Thereafter, two individuals and various states filed a lawsuit claiming the reduction of the tax to zero rendered the individual mandate unconstitutional. In particular, the entirety of the PPACA depends on the individual mandate and its effective removal rendered every other provision under the PPACA inoperable. The circuit court agreed with the plaintiffs and held that the individual mandate became an unconstitutional command when Congress reduced the amount to zero and, thus, it required the entirety of the PPACA to be struck down. The court of appeals held that the district court’s severability argument was incomplete and requested that the district court review the entirety of the PPACA to determine whether any of its provisions were affected by the reduction of the tax to zero beginning in 2017. In response, the petitioners, 16 states led by the State of California, filed a writ of certiorari to review the lower court’s decision.

Because the Supreme Court failed to review the constitutionality of the individual mandate and its effect on the PPACA, the PPACA continues to be in effect.  Nonetheless, it is unclear whether the current administration will increase the individual mandate penalty amount to prevent future attacks on the PPACA. If the penalty is increased, employers should expect their employees to enroll in either employer-sponsored, individual, or other health coverage.


IRS Provides Additional COBRA Premium Subsidy Guidance

On May 18, the IRS issued Notice 2021-31, which provides guidance affecting COBRA premium assistance pursuant to the American Rescue Plan Act of 2021 (ARPA). The notice includes 86 questions that clarify the application of the premium assistance to group health plans, employee eligibility, determination of the premium subsidy amount, and the advance payment or quarterly offset of taxes for employers.

 

Eligibility (Questions 1–20)

Notice 2021-31 clarifies that an assistance eligible individual (AEI) is an individual who experiences an original qualifying event of reduction in hours or involuntary termination of employment. If the AEI experiences an extension of COBRA continuation coverage period due to disability, a second qualifying event, or state mini-COBRA extension, he will be eligible for the subsidy to the extent that his additional period of coverage falls during the subsidy period. Finally, an AEI is no longer eligible for premium assistance if he is eligible for another group health plan or Medicare. An AEI is considered eligible for another group health plan if enrolled or eligible to enroll during the period April 1 to September 30, 2021.

Operationally, employers are not required to obtain an attestation or certification from the employee’s eligibility status to provide premium assistance. However, employers are required to maintain information used to make a determination, including any attestations or certification, if applicable.

 

Reduction in Hours (Questions 21–23)

An employee’s reduction in hours causes the qualified beneficiary to be eligible for premium assistance, regardless of whether the reduction in hours is voluntary or involuntary. In addition, furlough or strikes generally constitute reduction-in-hour events.

 

Involuntary Termination of Employment (Questions 24–34)

These questions and answers provide examples of what is and what is not considered an involuntary termination. In general, involuntary termination is the severance from employment due to the independent unilateral exercise of authority by an employer where the employee was otherwise willing to continue employment.

The following constitute involuntary termination.

  • Employer’s action to terminate employment because of the employee’s absence from work due to illness or disability
  • Termination for cause unless gross misconduct
  • Resignation due to material change in the geographic location of employment
  • Window termination (i.e., employees facing impending termination are offered a severance to terminate in a specified period of time)
  • Employee-initiated termination because of concerns about workplace safety if the circumstances amounted to constructive termination (i.e., the employer failed to provide reasonable accommodation)
  • Employee-initiated termination in response to reduction in hours
  • Failure of an employer to renew an employment contract

The following constitute voluntary termination.

  • Retirement
  • Employee-initiated termination due to concerns about workplace safety
  • Employee-initiated termination because child is unable to attend school or childcare facility because of COVID-19. However, if the leave is temporary and an employee-employer relationship exists, the qualifying event may be reduction in hours
  • Death of an employee

 

Coverage Eligible for Premium Assistance (Questions 35–42)

Premium assistance is available for group health plan coverage that includes medical, vision, or dental-only plans, health reimbursement arrangement (whether integrated or stand-alone), and retiree health plans (if available to active employees that are similarly situated). The premium assistance is not available for qualified small employer health reimbursement arrangements or health flexible spending arrangements.

 

Premium Assistance Period (Questions 43–46)

The premium assistance is available for the period April 1 to September 30, 2021, and the employee is eligible to receive premium assistance beginning the first period of coverage beginning on or after April 1, 2021. However, an employee is not required to elect the first period of coverage beginning on or after April 1, 2021, and may instead choose any prospective period of coverage within the available period (April 1 to September 30, 2021).

 

End of COBRA Premium Assistance Period (Questions 47–50)

COBRA coverage will continue for the AEI at the end of the subsidy period, but premiums must be timely paid for subsequent periods of coverage.

 

Extended Election Period (Questions 51–55)

An AEI will be able to have a second opportunity to elect coverage during the extended election period even if she had previously declined certain coverage while electing others (e.g., enrolling in continuation coverage for dental and vision but declining health coverage). Or if an employee had elected self-only continuation coverage, her spouse or dependent child, who would also qualify as an AEI, would also have a second election opportunity.

 

Extensions Under the Emergency Relief Notices (Questions 56–59)

Individuals must elect or decline retroactive coverage within 60 days of receipt of the election notice. Individuals will not have a second opportunity to elect coverage. The one-year extended period due to the pandemic continues to apply for premium payment outside the April 1 to September 30, 2021, period.

 

Payments to Insurers Under Federal COBRA (Question 60)

Insurers may be liable for excise taxes if they fail to treat an AEI as having made a full payment of the premium. The employer will be responsible for making a payment to the insurance carrier.

 

Comparable State Continuation Coverage (Questions 61–62)

State continuation programs will not fail to provide comparable coverage under ARPA if the programs provide different maximum periods of coverage, different qualifying events, or different qualified beneficiaries. However, a qualified beneficiary is eligible only if the individual meets the definition under COBRA.

 

Calculation of Premium Assistance (Questions 63–70)

The credit for the premium assistance is equal to the amount of COBRA premium costs not paid by the AEI plus any administrative costs otherwise allowed (generally, 102 percent). Notice 2021-31 clarifies that an amount subsidized by the employer would not be eligible for a credit.

 

Claiming the COBRA Premium Assistance Credit (Questions 71–86)

Regarding payment of the premium assistance to the plan sponsor, Notice 2021-31 clarifies that employers are eligible for the credit if subject to COBRA or self-insured and insurers are eligible for the credit for insured plans subject to mini-COBRA.

Notice 2021-31 also clarifies that the IRS and the Department of the Treasury are aware of additional issues concerning COBRA premium assistance that have not been addressed. They are continuing to consider the issues and may issue further subsequent guidance.


IRS Provides 2022 Amounts for HSAs and HRAs

IRS Revenue Procedure (Rev. Proc.) 2021-25 provides the 2022 inflation-adjusted amounts for health savings accounts (HSAs) and the maximum amount that may be made newly available for expected benefit health reimbursement arrangements (HRAs).

The HSA 2022 calendar year annual limitation on deductions under Internal Revenue Code (IRC) Sec. 223(b)(2) is $3,650 for an individual with self-only coverage under a high deductible health plan (HDHP) and $7,300 for an individual with family coverage under an HDHP.

In calendar year 2022, under IRC Sec. 223(c)(2)(A), an HDHP is a health plan with an annual deductible that is not less than $1,400 for self-only coverage or $2,800 for family coverage. The annual out-of-pocket expenses—deductibles, co-payments, and other amounts (but not premiums)—cannot exceed $7,050 for self-only coverage or $14,100 for family coverage.

Under Pension Excise Tax Regulation Sec. 54.9831-1(c)(3)(vii), the maximum amount that may be made newly available for the plan year for an excepted benefit HRA is $1,800 for plan years beginning in 2022.


IRS Notice Addresses Taxation of Dependent Care Benefits

On May 10, 2021, the IRS released Notice 2021-26, which addresses the taxation of dependent care benefits available during taxable years ending in 2021 or 2022 because of a carryover or extended claims period enacted under the Consolidated Appropriations Act, 2021 (CAA).  This notice clarifies that amounts that would have been excluded in the prior tax year remain excludable from income in the subsequent tax year. In particular, Notice 2021-26 provides three examples to illustrate when amounts carried over or available under an extended claims period are excludable from income, as follows.

Example 1: Calendar Plan Year

For the 2020 plan year, the employee elects to contribute $5,000, but incurs no dependent care expenses. The employee is permitted to carry over $5,000 into the 2021 plan year. For the 2021 plan year, the employee elects to contribute $10,500 to the plan. The employee is reimbursed for $15,500 in expenses during the 2021 plan year. The entire amount, $15,500, is excludable from income.

Example 2: Noncalendar Plan Year (July 1 to June 30)

For the 2020 plan year, the employee elects to contribute $5,000, but incurs no dependent care expenses. The employee is permitted to carry over $5,000 into the 2021 plan year. For the 2021 plan year, the employee elects to contribute $10,500 to the plan. The employee does not incur any dependent care expenses during the 2021 plan year. Beginning on January 1, 2022, the employee has $15,500 in available benefits. For the 2022 tax year, only $10,000 is excludable from income because $5,000 is the maximum carryover and $5,000 is the permitted contribution for the 2022 tax year. The remaining amount, if reimbursed is taxable. The example also includes another piece detailing the two-and-a-half-month grace period.

Example 3: Noncalendar Plan Year (July 1 to June 30)

For the 2020 plan year, the employee does not elect to participate or contribute in the dependent care plan. For the 2021 plan year, the employee elects to contribute $10,500 to the plan. The employee incurs $5,000 in dependent care expenses for the period July 1, 2021, to December 31, 2021. The $5,000 incurred is excludable from income. Beginning January 1, 2022, the employee has $5,500 available, but only $5,000 is excludable from income because $5,000 is the permitted contribution for the 2022 tax year. The remaining $500, if reimbursed, is taxable. The example also includes another piece detailing an additional employee contribution and incurred expenses.

Finally, this notice provides that an amount carried over or available under the extended claims period is not taken into account when determining the applicable limit.

Notice 2021-26 will be published in the Internal Revenue Bulletin 2021-21 on May 24, 2021.


IRS Guidance Affects Employment Taxes and COBRA Premium Subsidy

The IRS issued Notice 2021-24, which provides guidance following the passage of the American Rescue Plan of 2021 (ARPA). The Notice provides information regarding the applicable penalty relief available to an employer under the ARPA for failing to pay employment taxes in anticipation of a credit for COBRA premium assistance paid to assistance-eligible individuals. Notice 2021-24 provides that the credit applies against the employer Medicare taxes for each calendar quarter and is reported on the employer’s return, reporting liability for FICA tax or RRTA tax, as applicable. For most employers, the Form 941 would be used to file quarterly employment taxes and the Form 7200, Advance Payment of Employer Credits Due to COVID-19, would be used to obtain an advance payment of the refundable credit. An employer will not be subject to a penalty for failing to pay quarterly employment taxes if

  • the employer is the person to whom premiums are payable;
  • the amount of employment taxes that is not timely paid is less than or equal to the amount of the employer’s anticipated credits for the quarter; and
  • the employer did not seek an advance credit by filing the Form 7200.

Drafts of the Form 941-X Instructions and Form 7200 have been released by the IRS but will not be finalized until the Office of Management and Budget has reviewed and approved the forms. Usually, once approved, the final forms contain updated instructions and information. As released, the draft Form 7200 contains a line item to include the amount paid by the employer in COBRA premium subsidies. The draft Form 941-X contains outdated instructions applicable to COBRA premium assistance payments between September 2008 and May 2010. The draft Form 941-X section regarding COBRA premium assistance payments will be updated in July 2021 to reflect changes under the ARPA.