IRS Issues Guidance on the American Rescue Plan Act COBRA Subsidy

On March 11, 2021, President Biden signed into law the American Rescue Plan Act (ARPA) that contains a new, temporary COBRA subsidy. The ARPA COBRA subsidy requires employers to cover 100% of an employee’s cost of continuing group health coverage under COBRA from April 1, 2021 through September 30, 2021 for those who lost their health care coverage on account of a reduction of hours or an involuntary termination. On April 7, 2021, the Department of Labor released answers to frequently asked questions (FAQs) related to the ARPA COBRA subsidy and model notices. On May 18, 2021, the U.S. Internal Revenue Service released its own guidance—Notice 2021-31—for employers, plan administrators, and insurers concerning the ARPA COBRA subsidy.

Notice 2021-31 (the “Notice”) provides information regarding the calculation of the credit to multiemployer plans, employers, or insurers, the eligibility of individuals, the premium assistance period, and other information salient to employers, plan administrators, and insurers. The guidance is provided in the form of 86 questions and answers, which generally apply to federal COBRA and comparable state mini-COBRA requirements. Additionally, the Notice states that the IRS is considering whether to issue additional guidance related to the COBRA subsidy.

Guidance Clarifications

The Notice answers some of the questions left unanswered by the DOL FAQs and provides clarity about other ARPA subsidy issues.


One question that had been unclear from the language in the ARPA statute is whether the ARPA subsidy would cover medical, dental, and vision coverage or just medical coverage. The Notice clarifies that the ARPA subsidy covers dental and vision coverage as well as medical coverage.

Voluntary Versus Involuntary Terminations

The ARPA subsidy only applies to individuals who lost their health care coverage on account of an involuntary termination or a reduction in hours. The Notice provides some guidance as to when certain terminations of employment should be considered voluntary or involuntary.

The Notice clarifies that this determination is to be made on a case-by-case basis and depends on the facts and circumstances of a particular termination. The Notice provides that if a termination is designated as voluntary or as a resignation, but the facts and circumstances indicate that the employee was willing and able to continue performing services, the termination may be considered involuntary.  Factors that would be relevant to this determination include whether the employer would have terminated the employee’s services regardless of the resignation, and whether the employee had knowledge that the employee would be terminated.

The Notice states that retirement is generally not considered an involuntary termination. However, a mandated retirement might be considered an involuntary termination. Additionally, if facts and circumstances indicate that (i) absent retirement, the employer would have terminated the employee’s employment, (ii) the employee was willing and able to continue employment, and (iii) the employee had knowledge that the employee would be terminated absent the retirement, the retirement will be considered an involuntary termination of employment.

The Notice further clarifies that an employee’s resignation resulting from a material change in the geographic location of employment, or participation by an employee in certain voluntary window programs, will be considered involuntary terminations.

Additionally, the Notice provides guidance on whether terminations related to COVID-19 issues—e.g., workplace safety, childcare, reduction in hours—would constitute involuntary terminations.  See Q&As 30-34.

Reduction of Hours

The ARPA subsidy also applies to individuals who lost their health care coverage on account of a reduction in hours. The Notice clarifies that an individual is eligible for the ARPA subsidy when they experience a reduction of hours as a result of a furlough, lockout, lawful labor strike, as well as a voluntary reduction in hours or temporary leave of absence, which is defined by IRS as a leave where the employer and employee intend to maintain the employment relationship. This provision seems inconsistent with the exclusion of individuals from receipt of the ARPA subsidy who voluntarily terminate employment, specially as to the lawful labor strike reference.  The courts may have to decide if that agency reference is consistent with the statute.           


The Notice states that an employer may require individuals to self-certify or attest that they are eligible for COBRA continuation coverage due to a reduction of hours or involuntary termination of employment. Additionally, an employer may require individuals to self-certify or attest that they are not eligible for group health plan coverage or Medicare, either of which would disqualify them for the ARPA subsidy. An employer may rely on these self-certifications/attestations to obtain the ARPA credit and must retain the self-certifications/attestations or other documentation it uses to substantiate eligibility.

Extension of the Coverage Period

It had been unclear whether employers would need to provide the subsidy to individuals who were on COBRA or state continuation coverage during the subsidy period of April through September 2021 on account of a coverage continuation period exceeding 18 months.  The Notice clarifies that if an individual has originally elected COBRA on account of an involuntary termination or reduction in hours and remains on continuation coverage for an extended period (i.e., beyond 18 months) on account of a disability determination, second qualifying event, or an extension mandated under state law, provided those additional periods of coverage fall between April 1, 2021 and September 30, 2021, they will be eligible for the ARPA subsidy.

For example, the federal COBRA coverage period for disabled individuals is 29 months, not 18 months. So, if an individual elected COBRA that was effective August 2019, they would be eligible for the ARPA subsidy even though the COBRA period began more than 18 months before April 2021.  Also, in certain states such as New York, the law provides that continuation coverage under insured group healthcare plans will be extended for another 18 months after the end of the 18-month federal COBRA coverage period, for a total of 36 months.  So long as a former employee elected COBRA and remains on NY continuation coverage between April and September 2021, this period of coverage will be eligible for the ARPA subsidy.  The implications for employers regarding this issue are significant, as it could require employers to identify terminations as far back as 36 months for potential notice obligations. 

Next Steps for Employers

Employers are obligated to furnish notices to all individuals who are eligible for the ARPA COBRA subsidy by May 31, 2021. In many cases, the employer’s COBRA administrator will handle this task. However, the employer is ultimately responsible for COBRA compliance and should be sure to work with its COBRA administrators to meet this deadline.

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.