The Internal Revenue Service has issued its guidance on implementing the medical premium subsidy under the Consolidated Omnibus Budget Reconciliation Act for involuntarily terminated employees.

The guidance addresses a number of issues that have arisen concerning the premium reduction including what constitutes involuntary terminations, assistance eligible individuals, the calculation of the premium reduction, coverage eligible for the premium reduction, the beginning and end of the premium reduction period, and the extended election period. According to the IRS guidance, an involuntary termination for purposes of the COBRA subsidy “may include the employer’s failure to renew a contract at the time the contract expires, if the employee was willing and able to execute a new contract providing terms and conditions similar to those in the expiring contract and to continue providing the services. In addition, an employee-initiated termination from employment constitutes an involuntary termination from employment for purposes of the premium reduction if the termination from employment constitutes a termination for good reason due to employer action that causes a material negative change in the employment relationship for the employee.”

The IRS also clarifies that “involuntary termination is the involuntary termination of employment, not the involuntary termination of health coverage.” Qualifying events such as divorce or loss of dependent status due to a child’s aging out of eligibility are not involuntary terminations qualifying an individual for the premium reduction, according to the guidance.