By: HUB’s EB Compliance Team

After much anticipation, the Treasury Department and IRS finally released 86 Q&As in a 41-page Notice  on the American Rescue Plan Act’s (“ARPA”) COBRA subsidy provisions. The Q&As cover several broad areas. Below are the areas of most immediate interest for employers and other plan sponsors (for simplicity, we will only use the term “employer(s)” in this article).

Involuntary Termination (Q&As 24-34)

The biggest question has been “What is an involuntary termination?” The general rule is that a termination is involuntary if the employee is willing and able to continue to work but the employer on its own chooses not to continue the employment. Whether a termination is voluntary or involuntary depends on the facts and circumstances, so the characterization by an employer is not by itself enough if the other facts and circumstances do not align with the IRS guidance. The guidance also permits employers to collect a former employee’s attestation to validate termination circumstances (we discuss this more below).

While many cases are obvious, the cases at the margins are the challenging. The Q&As give some helpful guidance on those marginal cases. The table below lays out situations covered by the notice.

Voluntary Termination and/or Ineligible for ARPA COBRA Subsidy

Involuntary Termination & Eligible for ARPA COBRA Subsidy

A termination for gross misconduct precludes the employee and all dependents from COBRA entitlement, and COBRA subsidies. (Caution: As a general matter, employers rarely satisfy the difficult factual threshold required to invoke COBRA’s gross misconduct rule.)

Other Involuntary Termination for Cause

Most retirements or resignations, including, for example, inability to get childcare or due to school closing.

Employee resigns/retires in response to one or more of these situations:

  • A material negative change in the employment relationship/a constructive discharge, such as a material negative change in the employee’s pay, hours, or geographic work location.
  • Employee quits in anticipation of being terminated (e.g., “You can’t fire me, I quit!”).
  • As part of an early retirement/ window program.

An employee’s termination of employment due to general concerns about workplace safety. The employee’s personal situation, such as his/her health condition or that of a household member, is not relevant here. UNLESS ­...

An employee’s termination of employment due to concerns about workplace safety where the employee demonstrate that the employer’s actions (or inactions) resulted in a material negative change in the employment relationship analogous to a constructive discharge.

The employee’s contract ends at its scheduled expiration date and there was no expectation it would be renewed or extended.

The employee’s contract is not renewed or extended when the employee is willing and able to continue to work.

Death of the employee


If the employer terminates an employee on leave, this is considered an involuntary termination if there was a reasonable expectation at the time the employee took leave that they would return to work.

Small changes in facts and circumstances can trigger different results. For these cases at the margins, employers should review the facts carefully.

Reductions in Hours (Q&As 21-23)

The Q&As confirm that both involuntary and voluntary reductions in hours, that result in a loss of coverage entitling the individual to COBRA, trigger the COBRA subsidy. These include furloughs where the employer and employee expect the employee to return to work. They also include lawful strikes or employer-initiated lockouts.

Certifications From COBRA Qualified Individuals (Q&As 4-7)

Under the Q&As, employers may require individuals to self-certify that they are eligible for the COBRA subsidy. This is not mandatory. However, if an employer does not request these self-certifications, it must have other records to prove that the individuals were subsidy-eligible to obtain the tax credit.

Employers may also request that individuals certify that they are not eligible for other, disqualifying coverage. Recall that individuals are not eligible for the subsidy if they are eligible for other group health plan coverage or Medicare. While these attestations are also not required, it would be difficult to know whether a COBRA-eligible individual is also eligible for other coverage. (There are penalties that apply to individuals who fail to notify the employer that they are eligible for other group coverage or Medicare.) 

Employers can rely on these attestations unless they have actual knowledge that the attestations are wrong. As a practical matter, the DOL’s model Summary of COBRA Premiums Assistance Provisions (available here) includes all the above certifications. Since the DOL guidance requires this Summary to be included with election forms during the subsidy election period, employers should utilize these certifications for their records. If the employer is relying on the attestation (particularly for purposes of applying for the tax credit), it must keep copies of those attestations. Therefore, employers should request these certifications from their COBRA vendors, if applicable.

Interaction with Emergency Relief/Outbreak Periods (Q&A 9, 56, & 58)

The Q&As give some surprising answers about interplay between the new subsidy guidance and Outbreak Period rules. The Outbreak Period rule (discussed here) generally gives individuals extra time to elect and pay for unsubsidized COBRA. As a reminder, the extended election timeframes under the Outbreak Period guidance do not apply to the elections for the ARPA subsidy. In other words, the timeframe in which to activate “free” COBRA cannot be extended under the Outbreak Period rule.

However, Q&A-56 says that if an individual is in an Outbreak Period for COBRA coverage and is also subsidy-eligible, they now must make a choice. They can either obtain coverage from the original loss of coverage date forward or elect coverage from their subsidy eligibility forward. If they only elect coverage starting with their subsidy eligibility, they lose the ability to elect earlier COBRA coverage.

For example, assume Quentin was involuntarily terminated and lost coverage on December 1, 2020. Come April 1, Quentin is subsidy eligible. Quentin can either:

  • Elect coverage back to December 1, 2020 (and pay for the coverage from December 1, 2020 through March 31, 2021); or
  • Elect coverage from April 1, 2021 forward. However, if Quentin does this, he will not be eligible to elect coverage from December 1, 2020 through March 31, 2021 ever again. This is a shortening of the Outbreak Period for Quentin.

Note that if Quentin chooses option (1), then he must pay for coverage from December 1 through March 31. His deadline to pay for that coverage is still extended by the Outbreak Period. If Quentin only pays for part of that coverage, the partial premiums are applied to the earliest months first (i.e., starting with December 2020). (Q&A-58)

To add additional confusion, Q&A-9 expresses conflicting examples that describe how the Outbreak Period rules affect eligibility for other coverage. As noted above, eligibility for other group health plan coverage makes an individual unable to claim the subsidy. This includes coverage under a spouse’s plan.

Normally, with termination and the employee’s health coverage loss, a HIPAA special enrollment automatically triggers an opportunity to enroll in his or her spouse’s plan. Under the Outbreak Period guidance, that special enrollment opportunity can be extended for up to a year. Does this “extended enrollment option” into the spouse’s plan block the individual’s subsidy eligibility?

Q&A-9 Example 3 says the employee cannot claim the subsidy. This seems to be the correct conclusion since, at least during the Outbreak Period, the employee could be added to the spouse’s plan at any time. By contrast, Examples 1 and 2 (which focus on ordinary, annual open enrollment eligibility) are confusing because they ignore the effect of the HIPAA special enrollment right or the Outbreak Period, without any explanation. Hopefully, the IRS will provide additional clarification.

Special Eligibility Situations (Q&A-10, 13, & 45)

The Q&As also address the following special situations that impact subsidy eligibility:

  • Individuals who dropped COBRA because they had other coverage and then subsequently lose that other coverage remain able to elect the subsidy. (Q&A-10)
  • Individual Marketplace health coverage does not make someone ineligible for the COBRA subsidy. However, if that person chooses to take COBRA with the subsidy, they would lose any premium tax credit that they are using to pay for the individual Marketplace coverage. (Q&A-13) This may discourage individuals from dropping individual Marketplace coverage in favor of subsidized COBRA, especially since doing so may cause them to lose any premium tax credit toward deductibles or out-of-pocket maximums for health expenses they have already incurred.
  • If an employer was subject to federal COBRA in 2020, but is not subject to federal COBRA in 2021 (because it employed fewer than 20 employees on average in 2020), it must still offer COBRA and the subsidy to individuals with qualifying events in 2020. (Q&A-45) This is consistent with the general COBRA rule that requires these employers to continue to offer COBRA for those employees that lost coverage while the employer was subject to federal COBRA. By contrast, individuals who become eligible in 2021 would be subject to state continuation (or sometimes known as mini-COBRA), if available.

When the Subsidy Is Unavailable (Q&A-15, 19, & 68)

In addition to eligibility for other group health coverage or Medicare, the subsidy is also not available in the following circumstances:

  • Anyone that is not an employee, spouse, or dependent child eligible for federal COBRA is not eligible for the subsidy. This means, for example, that domestic partners, even if they count as tax dependents and even if they are required to be covered under state law for insured plans, are not eligible to receive the subsidy. (Q&A-19)
    • Helpfully, the Q&As use the “incremental cost” method to determine what portion of the subsidy cannot be claimed. (Q&A-68) For example, assume Samuel’s employer covers domestic partners and offers only self-only, self plus one, and family coverage options. The monthly COBRA cost for those three coverages is $400 for self-only, $800 for self plus one, and $1,300 for family.
    • Assume Samuel covers himself, his two children, and his domestic partner. Because Samuel plus his two children would have family coverage anyway, he can receive the full $1,300 credit. There’s no additional incremental cost to cover the domestic partner.
    • Assume instead Samuel covers himself, one child, and his domestic partner. Without covering the domestic partner, Samuel would only pay $800 for COBRA. In this case, the domestic partner is adding $500 of additional cost ($1,300 for family minus the $800 for self plus one). Therefore, Samuel can only receive the subsidy (and the employer can only claim a tax credit for) $800.
  • Plans that voluntarily extend continuation coverage, even though they aren’t subject to federal COBRA or state mini-COBRA laws, such as a self-insured church plan. (Q&A-15)

Eligible Coverage (Q&A 35-42)

The Q&As confirm that the following coverages are subsidy-eligible:

  • Dental-only or vision-only coverage.
  • Health reimbursement arrangements (HRAs), including Individual Coverage HRAs (unless the individual coverage HRA is integrated with Medicare).
  • Retiree coverage, if it’s offered under the same plan as active coverage, may be treated as COBRA continuation coverage for which COBRA premium assistance is available.

Additionally, sometimes the plan that the COBRA-qualified individual was in when they were first eligible to elect COBRA is no longer available (for example, because the employer changed carriers or eliminated a plan option). In that case, the individual should be offered the most similar coverage option available to similarly situated active employees.

Tax Credit Issues (Q&A 64, 70, and 85)

Employers receive reimbursement of the premium through credits against their Medicare taxes (which is generally claimed through the employer’s Form 941). The Q&As offer extensive guidance on claiming the credit. While claiming the credit will happen later, some of the answers may affect how the employer offers the credit to COBRA-qualified individuals. Specifically:

  • In general, employers cannot claim the tax credit if they are subsidizing COBRA themselves (such as in a severance agreement). (Q&A-64) Some employers rushed to adjust such agreements to defer their COBRA funding until after the ARPA program concludes and the IRS failed to describe whether such changes affected subsidy payments. 
  • The tax credit the employer can claim for any individual coverage HRA is the amount paid by the individual coverage HRA, not the amount of the premium paid by the COBRA-qualified individual. (Q&A-70)
  • If an employer receives a premium payment from a subsidy-eligible individual for coverage during the subsidy period, the employer cannot claim the credit until the employer reimburses the individual. (Q&A-85) Under ARPA, the employer is supposed to issue the refund in 60 days. However, #14 of the DOL FAQs that were issued in early April suggest that individuals can ask to have those payments applied toward future coverage. It is not clear when the employer can claim the credit in that circumstance. Some clarity around this conflicting guidance would be helpful.

Note that if the subsidy is provided for coverage under state mini-COBRA laws, the credit is claimed by the carrier, rather than the employer.


The guidance is extensive and nuanced. While it answers many key lingering employer questions, it also spawns new confusion. Employers are nevertheless well-served to familiarize themselves with the guidance and understand how it applies to their organizational situations. In particular, employers may want to review their determinations of which individuals are eligible for the subsidy based on the additional guidance on involuntary terminations and reduction in hours.

If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory.


The information herein is intended to be educational only and is based on information that is generally available. HUB International makes no representation or warranty as to its accuracy and is not obligated to update the information should it change in the future. The information is not intended to be legal or tax advice. Consult your attorney and/or professional advisor as to your organization’s specific circumstances and legal, tax or other requirements.