Updated 7/27/21: On 7/26/17, the IRS released Notice 2021-46, which provides additional ARPA guidance. Notice 2021-46 confirms that employers are entitled to an ARPA premium tax credit for plans subject to federal COBRA and state-mandated continuation coverage under a state “mini-COBRA” law.


In March 2021, Congress passed the American Rescue Plan Act of 2021 (ARPA), which, among other things, provided a 100% COBRA subsidy from April 1, 2021 through September 30, 2021 to employees and qualified beneficiaries (dependents and spouses) who lost their employer-sponsored healthcare coverage due to a reduction in hours or involuntary termination (referred to as “assistance eligible individuals” or AEIs). The ARPA COBRA subsidy was designed so AEIs must be treated as having “fully paid” the applicable premiums. Notably, the subsidy applies to continuation coverage under both federal COBRA and state “mini-COBRA” laws.

Practically speaking, ARPA requires entities that are “normally” entitled to COBRA premium payments (the “payable entity”) to “advance” premium amounts on behalf of AEIs and, in turn, ARPA provides reimbursements to the payable entity in the form of refundable payroll tax credits. For fully insured plans subject to only state mini-COBRA laws (plans sponsored by employers with less than 20 employees in the prior year), the administration of these subsidies can become complicated where the insurer is entitled to the premium tax credit under ARPA, but the employer is obligated to remit premiums to the insurer under state law or a contractual agreement. Below we discuss these issues further.

State Continuation Coverage and ARPA

The ARPA subsidy is available for AEIs who are entitled to continuation coverage under analogous “COBRA-like” state laws, such as those in California and New York. Generally, under state mini-COBRA, AEIs can be entitled to continuation coverage outside of federal COBRA in one of two scenarios:

  1. Employers with under 20 employees (“Small Employers”): Employers with under an average of 20 employees in the prior calendar year are not subject to federal COBRA laws and are not required to offer federal COBRA coverage. However, some states, such as California and New York, require fully insured plans to extend COBRA-like continuation coverage to COBRA qualified beneficiaries.
  2. Employers with over 20 employees: Employers with 20 or more employees in the prior calendar year must offer federal COBRA coverage to COBRA qualified beneficiaries for up to a certain period (usually, up to 18 months). Once a COBRA qualified beneficiary’s maximum coverage is exhausted under federal COBRA, some states require fully insured plans to extend the coverage for an additional period.

ARPA Premium Tax Credits for State Continuation Coverage

Under ARPA, the following entities are entitled to the premium tax credit:

  1. The plan, for group health plans that are multiemployer plans (i.e., union plans);
  2. The employer, for group health plans that are not multiemployer plans and that are subject to federal COBRA or if some or all of the employer group health plan coverage is not provided by insurance (i.e., self-insured and level funded plans); or
  3. The insurer, who is providing coverage under a fully insured group health plan that is not described in (1) or (2) above (generally, fully insured plans not otherwise subject to federal COBRA who may be subject to state-based COBRA continuation).

Employers subject to federal COBRA or who sponsor self-insured/level funded plans must advance the ARPA premiums and are entitled to reimbursement through premium tax credits. In Notice 2021-46, the IRS confirms that employers subject to federal COBRA will be able to obtain premium tax credits for AEIs who exhaust their federal COBRA maximum coverage period and continue coverage under a state mini-COBRA law. Consequently, even if state mini-COBRA requires AEIs to pay premiums directly to the insurer after the period of federal COBRA coverage ends, the insurer is not entitled to claim the premium tax credit. See Q&A #5, Notice 2021-46.

On the other hand, in cases where an employer is not subject to federal COBRA, insurers of fully insured plans are entitled to the premium tax credit. Though ARPA would appear to let these small employers “off the hook” for advancing premiums for state COBRA continuation, the mechanics of COBRA premium payments get more complicated where employers are required to collect and remit payments to the insurer pursuant to a state mini-COBRA law or separate arrangement with the insurer or employee. In these situations, an employer may be obligated to advance premiums, as ARPA does not explicitly exempt employers from state mini-COBRA requirements or contractual liability.

To further complicate the matter, in Notice 2021-31 (which we reviewed in our prior blog), the IRS states that in cases where a fully insured plan is subject solely to state law requiring the insurer to provide continuation coverage, the employer will not be eligible for the assistance premium credit if the employer pays the full premium to the insurer.

Employer Recommendations

Fully Insured Employers Subject to Federal COBRA: Since COBRA qualified beneficiaries often apply for state continuation coverage directly through the insurer, fully insured employers subject to federal COBRA should work with their insurer to determine whether their plans have AEIs on state continuation coverage and how the premiums will be handled for those AEIs. Employers who are responsible for advancing state mini-COBRA premiums should be sure to apply for a premium tax credit for those amounts. For more on how employers can claim the ARPA tax credits, see our blog.

Fully Insured Small Employers Not Subject to Federal COBRA: Small employers who sponsor fully insured plans subject only to state mini-COBRA laws (and not federal COBRA) should be aware that they may be responsible for advancing state COBRA premiums under a state mini-COBRA law or contractual agreement with their insurer, even though they are not subject to ARPA requirements directly. These employers should also be aware that they will not be entitled to ARPA premium tax credits if they advance premiums to their insurer (only the insurer is entitled to premium tax credits in this situation).

As such, small employers are encouraged to review any applicable state mini-COBRA law and contractual terms they have with their insurer regarding the collection and remittance of state premium payments. Small employers may want to negotiate more favorable contractual terms with their insurer to avoid responsibility for advancing ARPA premiums in cases where only the insurer can apply for the credit (and no such state law requires them to do so).

Additional Resources

Emerald Law – Emerald is a Client Compliance Consultant for Sequoia, where she works with our clients to optimize and streamline benefits compliance. In her free time, Emerald enjoys stand-up comedy, live music and writing non-fiction.