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IRS Clarifies Timeframes for COBRA Elections and Premiums under COVID-19 Relief

October 07, 2021

The IRS published Notice 2021-58 to clarify the application of the extension of timeframes under certain Emergency Relief Notices to COBRA elections and premium payments during the COVID-19 National Emergency.
Alert

At a Glance

  • On October 6, 2021, the IRS published Notice 2021-58 to clarify the application of the extension of timeframes under certain Emergency Relief Notices to COBRA elections and premium payments during the COVID-19 National Emergency.
  • The Notice provides timelines and examples for calculating when individuals will need to elect and make their initial COBRA payments, based upon when these individuals elected COBRA under the Emergency Relief Notices.
  • Individuals can continue to elect and pay for COBRA under the pre-COVID timeframes, but the relief provided by the Emergency Relief Notices is automatically available should they need it.

Background

Previously issued guidance from the Department of Labor (DOL), Health and Human Services (HHS), the Treasury, and the IRS provided extensions for certain COBRA timeframes:

  • The 60-day election period for COBRA continuation coverage;
  • The dates for making COBRA premium payments;
  • The date for individuals to notify the plan of a qualifying event or determination of disability; and
  • The date for providing a COBRA election notice for group health plans and their sponsors and administrators.

In EBSA Disaster Relief Notice 2021-01, these timeframes were disregarded until the earlier of:

  • One year from the date that individuals and plans were first eligible for relief, or
  • The end of the “Outbreak Period” (60 days after the announced end of the National Emergency by HHS).

This previously issued guidance is collectively referred to as the “Emergency Relief Notices”. While the relief is mandatory, individuals can continue to elect and pay under the pre-emergency deadlines and are not obligated to wait until the relief deadlines to elect or pay. The relief provided by the Emergency Relief Notices is intended to provide affected individuals with additional time to elect and pay for COBRA coverage due to the COVID-19 emergency.

The newest guidance, in IRS Notice 2021-58 makes numerous clarifications about how the existing guidance should apply. Please see below for specific details from IRS Notice 2021-58.

Initial COBRA Election

IRS Notice 2021-58 confirms that individuals must make the initial COBRA election by the earlier of (1) one year and 60 days after the individual’s receipt of the COBRA election notice, or (2) the end of the Outbreak Period.

Initial COBRA Premium Payments

Notice 2021-58 clarifies that the disregarded period for an individual to elect COBRA continuation coverage and the disregarded period for the individual to make initial and subsequent COBRA premium payments generally run concurrently. Further, the following rules apply to the initial COBRA premium payment made under the relief provided by the Emergency Relief Notices:

  • If an individual elected COBRA continuation coverage outside of the initial 60-day COBRA election timeframe, 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.
  • If an individual elected COBRA continuation coverage within the initial 60-day COBRA election timeframe, that individual will have one year and 45 days after the date of the COBRA election to make the initial COBRA premium payment.

Applying the disregarded periods in this way means that individuals who delay electing COBRA may not have more than one year of total disregarded time for the COBRA election and initial COBRA payment. However, these payment timeframes are subject to transition relief addressed later in this alert.

Subsequent COBRA Premium Payments

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 date the payment originally would have been due in the absence of the Emergency Relief Notices, including the mandatory 30-day grace period.

Transition Relief

Under the transition relief, in no event will an individual be required to make the initial premium payment 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, provided that the individual makes the initial premium payment within one year and 45 days after the date of the election.

Interaction with the ARP COBRA Premium Assistance

The extensions of the timeframes under the Emergency Relief Notices do not apply to the periods for providing the required notice of the ARP extended election period or for electing COBRA continuation coverage with COBRA premium assistance under the ARP. An individual who has a disregarded period under the Emergency Relief Notices may elect retroactive COBRA continuation coverage, subject to the guidance in Notice 2021-58, and may elect COBRA continuation coverage with COBRA premium assistance for any period for which the individual is eligible for COBRA premium assistance. However, the disregarded periods under the Emergency Relief Notices continue to apply to payments of COBRA premiums after the end of the ARP COBRA premium assistance period, to the extent that the individual is still eligible for COBRA continuation coverage and the Outbreak Period has not ended.

Examples

IRS Notice 2021-58 includes 10 examples that illustrate how the COBRA elections and premium payments work under the notice. Following are two of those examples.

Example 1. COBRA election made more than 60 days after receipt of COBRA election notice under the Emergency Relief Notices.

Facts. Individual A participates in Employer X’s group health plan. On August 1, 2020, Individual A has a qualifying event and receives a COBRA election notice. Individual A elects COBRA continuation coverage on February 1, 2021, retroactive to August 1, 2020. When must Individual A make the initial COBRA premium payment and subsequent monthly COBRA premium payments?

Conclusion. Individual A has until November 14, 2021 to make the initial COBRA premium payment (one year and 105 days after August 1, 2020), because Individual A did not elect COBRA continuation coverage under the Emergency Relief Notices within 60 days after receipt of the election notice. The initial COBRA premium payment would include monthly premium payments for August 2020 through October 2020. The November 2020 monthly COBRA premium payment would be due by December 1, 2021 (one year and 30 days after November 1, 2020), with premium payments due every month after that for the months that Individual A is eligible for COBRA continuation coverage.

Example 2. COBRA election made within 60 days of the receipt of COBRA election notice under the Emergency Relief Notices.

Facts. Individual B participates in Employer Y’s group health plan. Individual B has a qualifying event and receives a COBRA election notice on October 1, 2020. Individual B elects COBRA continuation coverage on October 15, 2020 retroactive to October 1, 2020. When must Individual B make the initial COBRA premium payment and subsequent monthly COBRA premium payments?

Conclusion. Individual B has until November 29, 2021, to make the initial COBRA premium payment (one year and 45 days after October 15, 2020) because Individual A elected COBRA within 60 days of receiving the election notice. The initial COBRA premium payment would include only the monthly premium payment for October 2020. The November 2020 monthly

COBRA premium payment would be due by December 1, 2021 (one year and 30 days after November 1, 2020), with premium payments due every month after that for the months Individual B is eligible for COBRA continuation coverage.

Next Steps

Employers subject to COBRA should review the new guidance and work with their COBRA Administrators to determine next steps. While IRS Notice 2021-58 does not specifically address notifying COBRA affected individuals of these clarifications, EBSA Disaster Relief Notice 2021-01 stated that plan disclosures issued prior to or during the pandemic may need to be reissued or amended if such disclosures failed to provide accurate information regarding the time in which participants and beneficiaries were required to take action. Based on that statement, it’s likely that existing relief related disclosures should be updated.

Thank you for choosing Paylocity as your Payroll Tax and HCM partner. This information is provided as a courtesy, may change and is not intended as legal or tax guidance. Employers with questions or concerns outside the scope of a Payroll Service Provider are encouraged to seek the advice of a qualified CPA, Tax Attorney or Advisor.