IRS clarifies COBRA time frame extensions

The IRS, in coordination with the departments of Labor (DOL) and Health and Human Services (HHS), has issued Notice 2021-58 to clarify issues surrounding the time frame extensions for COBRA continuation coverage implemented in response to the COVID-19 pandemic. The guidance addresses both the election of and premium payments for COBRA continuation coverage under the time frame extensions as well as how the extensions interact with COBRA premium assistance under the American Rescue Plan Act of 2021 (ARPA). The guidance is effective immediately.

Background

In response to the COVID-19 pandemic, the federal government issued several pieces of guidance, referred to collectively as the Outbreak Period rules:

• May 2020: The DOL and the Department of the Treasury issued regulations extending certain time frames under the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code for group health plans, disability and other welfare plans, participants and beneficiaries, employers and other plan sponsors, plan fiduciaries, and other service providers affected by the COVID-19 outbreak during and following the Outbreak Period.¹ The Outbreak Period was originally defined as the period from March 1, 2020, until 60 days after the end of the National Emergency (which, to date, has not been announced). Under the regulations, the following COBRA time frames were extended:
  • The 60-day election period for COBRA continuation coverage
  • The date for making COBRA premium payments (typically 45 days for the initial premium and made not later than 30 days after the first day of the period for which payment is being made for subsequent premiums)
  • The date for individuals to notify a group health plan of a qualifying event or determination of disability under COBRA
  • The date for providing a COBRA election notice under ERISA and the tax code
• February 2021: The DOL issued EBSA Disaster Relief Notice 2021-01 clarifying the definition of the Outbreak Period.² Under this guidance, individuals and group health plans with time frames that are subject to the relief will have the applicable periods disregarded until the earlier of: (1) one year from the date the individual or plan was first eligible for relief, or (2) 60 days after the announced end of the National Emergency (i.e., the end of the Outbreak Period). A disregarded period cannot exceed one year.

ARPA provided for temporary COBRA premium subsidies for certain assistance eligible individuals; however, those subsidies have since expired and are no longer available.

New guidance

The new notice clarifies that the extended time frame under the Outbreak Period rules for an individual to elect COBRA continuation coverage and the extended time frame for the individual to make initial and subsequent COBRA premium payments generally run concurrently:

• If an individual elected COBRA continuation coverage outside of the initial 60-day COBRA election period, that individual generally will have one year and 105 days after the date the COBRA notice was provided to make the initial COBRA premium payment (60 days to make the initial election plus 45 days to pay the initial COBRA premium).
• If an individual elected COBRA continuation coverage within the initial 60-day COBRA election period, that individual will have one year and 45 days after the date of the COBRA election to make the initial COBRA premium payment.

Thus, individuals who delay electing COBRA may not have more than one year of total disregarded time for the COBRA election and initial COBRA payment. These general time frames are subject to the transition relief (see below).

The notice provides four examples of how these rules apply:

1. COBRA election made more than 60 days after receipt of COBRA election notice under the Outbreak Period rules
2. COBRA election made within 60 days of the receipt of COBRA election notice under the Outbreak Period rules
3. Time frame for electing COBRA under the Outbreak Period rules
4. Failure to make COBRA premium payments under the Outbreak Period rules

Transition relief

The notice provides an exception to the general rule that disregarded periods for COBRA elections and initial COBRA payments run concurrently to account for some individuals who may have assumed they had longer to pay the initial COBRA premium. As long as an individual makes the initial COBRA premium payment within one year and 45 days after the election date, in no event will an initial COBRA premium payment be due 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. For each subsequent COBRA premium payment, the maximum time an individual has to make a payment while the Outbreak Period continues is one year from the original due date without the time frame extensions, including the mandatory 30-day grace period.

The notice provides two examples of applying this transition relief:

1. Applying the relief for COBRA premium payments due before November 1, 2021
2. Failure to make the initial premium payment within one year and 45 days of election

ARPA

The notice clarifies that the time frame extensions do not apply to providing the required notice of the ARPA extended election period or for electing COBRA continuation coverage with COBRA premium assistance under ARPA. An individual who has a disregarded period under the Outbreak Period rules may elect retroactive COBRA continuation coverage as well as COBRA continuation coverage with COBRA premium assistance for any period during which he or she is eligible; however, the disregarded periods continue to apply to payments of COBRA premiums after the end of the ARPA COBRA premium assistance period, to the extent that the individual is still eligible for COBRA continuation coverage and the Outbreak Period has not ended.

Going forward

• Employers should review the guidance in the notice against their current COBRA administration policies and practices to ensure they take into account the COBRA time frame extensions under the Outbreak Period rules.
• Employers using third-party COBRA administrators should confirm that they are appropriately administering COBRA in accordance with the guidance in the notice.
• Employers should review any communications to plan participants and beneficiaries that address the Outbreak Period rules, specifically as applied to COBRA, to ensure they are accurate. Any changes made necessary by the guidance should be communicated as soon as possible to those who are affected, particularly those who may be entitled to the available transition relief.

Footnotes

¹ See “Health and welfare plan time frames extended due to COVID-19,” Insider, May 2020.

² See “DOL guidance on end of COVID-19 ‘Outbreak Period’,” Insider, March 2021.