COBRA Continuation Coverage and the ACA – 2023

The IRS has provided additional guidance regarding the application of the Consolidated Omnibus Budget Reconciliation Act (COBRA) provisions as they have been amended under the American Rescue Plan (ARP). Learn everything you need to know about COBRA Continuation Coverage below!

COBRA Basics

This guidance, IRS Notice 2021-46, builds upon the previous Notice 2021-31 and presents various stipulations related to COBRA continuation coverage in a Q&A format. Before delving into the details, it’s worth mentioning that the ARP introduced several adjustments to COBRA coverage for certain individuals.

To begin with, the ARP grants individuals who initially refused COBRA continuation coverage, or those who chose it and later dropped it, a second chance to sign up for the coverage.

Notice 2021-46 describes explicit situations where individuals are considered “assistance eligible” and meet the requirements to get COBRA premium assistance. Such situations can include disability determination, a secondary qualifying event, a State mini-COBRA extension after reduced working hours, or an involuntary termination during the initial COBRA eligibility period.

The notice also includes an illustrative example for better understanding. Furthermore, it explains specific aspects of dental, vision, and medical COBRA coverage.

Particularly, those individuals who receive dental and vision benefits via assistance eligible COBRA continuation coverage cannot maintain these benefits if they become qualified for other disqualifying group health plans or Medicare that don’t provide dental or vision benefits. This implies that individuals cannot simultaneously avail of Medicare/Medicaid and medical and vision benefits through COBRA premium assistance. The notice emphasizes that individuals have to choose one option.

The notice also tackles other issues pertinent to COBRA premium assistance, including:

  • The comparison of state continuation coverage programs and federal COBRA contribution coverage
  • Guidelines on which employer types can claim the COBRA premium assistance credit and under what circumstances

ACA Employer Mandate

Employers must inform eligible individuals about available COBRA continuation coverage. They are also required to pay the initial premium amounts for any individuals who receive COBRA premium assistance. 

Under the ACA Employer Mandate, Applicable Large Employers (ALEs) are required to: 

  • Offer Minimum Essential Coverage (MEC) to at least 95% of their full-time employees and their dependents that meets Minimum Value standards
  • Guarantee that the coverage is affordable, based on one of the IRS-approved affordability calculation methods

Failure to meet these two requirements could subject your organization to penalties under the Internal Revenue Code (IRC) Section 4980H. 

Learn more about how to report COBRA offers using our coverage scenarios guide and the IRS FAQ on COBRA coverage

Understanding ACA regulations is an incredibly important step for staying compliant. Become an ACA expert using our essential guide and get started with your ACA filing today!

BoomTax, The Boom Post, and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors prior to engaging in any transaction.

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