March 16, 2021
On March 11, 2020 President Biden signed into law the American Rescue Plan Act of 2021 (ARPA, HR 1319). This mammoth relief and stimulus package includes several provisions that expand certain employee welfare benefit programs to aid certain workers both currently employed and temporarily out of work due to the coronavirus (COVID-19) pandemic. Among other things, the Act provides for an employer to optionally allow a one-year increase to the dependent care flexible spending account (DCFSA) exclusion limit. More significantly the Act provides for a 100% federally financed COBRA subsidy for April 1st through September 2021 for certain employees and family members who lost coverage because of involuntary termination of employment or reduction of hours.
Below are the significant provisions for employers and plan sponsors:
- Expansion of dependent care assistance exclusion. The Act increases the taxable wage exclusion for dependent care benefits from $5,000 to $10,500 for married couples filing jointly. The amount of excludable wages for married couples filing separately is increased from $2,500 to $5,250. This increase applies for 2021 only. Employers who sponsor a DCFSA can voluntarily choose to adopt this provision (it is not required) and increase the available election amount for 2021 under the DCFSA. Employers who want to offer an increased DCFSA election limit for 2021 should work with their FSA administrators to adjust contribution limits and reimbursements, communicate the ability to increase elections to employees as soon as possible, and ensure they amend their DCFSA by the end of the 2021 plan year to allow for this increased amount.
- New COBRA premium subsidy. The Act provides that “Assistance Eligible Individuals” (AEIs) may receive a 100% subsidy for COBRA premiums paid during any period of COBRA coverage during a six-month period beginning April 1, 2021 and ending September 30, 2021 (the subsidy period). These subsidy rules will present administrative challenges to employers and COBRA administrators, and it is expected that many individuals will take advantage of this opportunity to acquire health insurance during the subsidy period at no cost. The pertinent details are below:
- Who is an AEI? An AEI is any COBRA qualified beneficiary (QB) – employees and their families – who elects COBRA during the subsidy period due to a qualifying event of involuntary termination of employment or reduction in hours. The subsidy is not available for other qualifying events, including for employees who lose coverage due to voluntarily ending employment.
- Premium Payments and Subsidy Coverage. The QB will pay zero during the subsidy period and the employer/carrier will pay the full premium (100%) or the employer will cover QBs at no cost under a self-insured plan. Employers will then recover the premiums through a payroll tax credit (similar to how employers recovered mandatory Families First Coronavirus Response Act (FFCRA) paid leave costs). The subsidy will cover the full COBRA cost for medical, dental, and vision (but not health FSAs), at any coverage level (e.g., single or family) for employees and former employees, and their spouses or dependents who are QBs following an involuntary termination or reduction in hours. The subsidy also applies to state continuation when due to an involuntary termination or reduction in hours.
- Subsidy Period and Expiration. The subsidy is available from April 1, 2021 through September 30, 2021, or sooner if the QB’s maximum period of coverage ends before September 30, or if the QB becomes eligible for coverage under another group health plan or Medicare before that date. A QB receiving the subsidy is required to notify the employer/administrator upon becoming eligible for other coverage and employers should notify QBs that they could face a $250 penalty for failure to provide notification (or in the case of intentional failure to notify, the greater of $250 or 110% of the premium assistance provided after loss of eligibility). In no case is an individual eligible for more than the COBRA maximum coverage period measured from the original COBRA event date.
- Enrollment Period. A QB who is eligible for assistance and who hasn’t elected COBRA coverage by April 1, or who elected COBRA coverage but then discontinued it, may elect COBRA during an enrollment period starting April 1 and ending 60 days after the date on which the COBRA notification was delivered. Apparently those individuals who are eligible for Outbreak Period delays will also be covered by the COBRA subsidy if they meet the eligibility requirements.
- QBs who become eligible for COBRA due to involuntary termination or a reduction in hours during the subsidy period are eligible for the subsidy.
- QBs who previously became eligible for COBRA due to involuntary termination or a reduction in hours and are still within their maximum coverage period but who do not have a COBRA election in effect on April 1 (e.g., waived coverage), have a second chance to enroll in COBRA and are eligible for the subsidy.
- QBs who previously became eligible for COBRA due to involuntary termination or a reduction in hours and elected, but then discontinued, COBRA coverage before April 1, 2021, have a second chance to enroll in COBRA and are eligible if they are still within their maximum period of coverage.
- Individuals meeting these criteria may make a COBRA election during the period beginning on April 1, 2021, and ending 60 days after they are provided required notification of the extended election period.
- If such individuals elect COBRA coverage within 60 days of being notified of the subsidy opportunity, coverage would be provided prospectively from the second election date, not retroactively to the original COBRA event date.
- If there is a lapse in coverage between the original COBRA event and the new special second election, employers cannot force the QB to pay back premiums to take advantage of this second election opportunity.
- COBRA coverage elected during the extended election period will commence with the first period of coverage beginning on or after April 1, 2021, and may not extend beyond the AEI’s original maximum period of coverage.
- Optional Different Medical Option Election. The Act creates a “plan enrollment option,” under which a plan may (but is not required to) permit AEIs to enroll in a different—but not more expensive—medical plan option than the one in which they were enrolled when coverage was lost. An AEI would have 90 days after notice of the enrollment option is provided to make the election. The different coverage cannot have a premium that is higher than the premium for the individual’s existing coverage and must also be offered to active employees. Different coverage that offers only excepted benefits is excluded, as are QSEHRAs and health FSAs. Plan sponsors would need to include the availability of the alternative option in the notices they send out.
- Notice Requirements. Employers will be required to timely notify AEIs who become entitled to elect COBRA during the subsidy period of the subsidy’s availability and the option to enroll in different coverage (if permitted by the plan). This notice obligation can be met by amending existing notices or by providing the required notices in a separate document.
- Employers must send notice to any individuals who experienced a COBRA event due to an involuntary termination or reduction in hours and who are still within their 18-month maximum COBRA period. This notice informs these individuals of their right for a second chance at electing COBRA coverage. The special notice must be sent to eligible individuals no later than May 31, 2021 (60 days after the date the subsidy goes into effect).
- Employers must also notify AEIs of their subsidy’s expiration between 45 and 15 days before the expiration date, although this notice will not be required if their subsidy is ending due to the individual’s eligibility for other coverage.
- Specific notice content requirements apply, and the DOL is required to issue model notices for initial subsidy notifications within 30 days of enactment (or by April 10th) and a model expiration notice within 45 days of enactment. These model COBRA notices should ease the burden on employers of revising current notices.
Employers should coordinate with their COBRA administrators to ensure compliance related to managing the election changes, notice requirements, and billing. Employers ultimately remain responsible for compliance, so vendors will depend on employers to report affected QBs and those who may be newly eligible for the special election and subsidy.
Comment on federal subsidies for Marketplace plans. Through 2022, the Act expands access to federal Marketplace subsidies by eliminating the ACA subsidy cutoff if a purchaser earns more than 400% of the federal poverty level (FPL), about $51,520. Instead, for those earning more than 400% of the FPL, these subsidies will gradually decrease as income rises, limiting the cost of ACA plan premium contributions for silver (midlevel) health plans to no more than 8.5% of an individual or family’s income. Until its expiration in September, the 100% COBRA subsidy is likely to keep terminated employees enrolled in their employer-sponsored plan, But beginning in October, those who have not exhausted their 18 months of COBRA coverage (or 29 months for people with disabilities) may want to compare the cost of maintaining COBRA with the cost of purchasing an ACA Marketplace plan with enhanced subsidies. Note that in general, active employees who are offered insurance through work are not eligible for ACA premium subsidies if their employer-sponsored coverage is considered affordable and meets the ACA’s minimum-value requirement.
Summary. Employers should coordinate immediately with their COBRA and FSA vendors to ensure compliance with these new rules. On the COBRA subsidies, employers need to implement the rules on very short notice as subsidies are to be available beginning April 1, 2021. Employers should prepare now to gather the names of QBs who lost coverage due to involuntary termination or reduction in hours (as far back as November 2019) so they can be sure that anybody who is eligible for COBRA during the subsidy period gets a notice and ability to elect COBRA. Employers should also plan to send out notices and inform individuals about the subsidy, and they will have to send out a notice when the subsidy terminates.
Next Steps. Conner Strong & Buckelew is actively developing tools, resources and service solutions to assist plan sponsors in meeting these requirements. To keep you up to date on the new rules, Conner Strong hosts educational webinars for employers. You are invited to join us on March 22 from 2pm – 3pm for our next webinar “American Rescue Act and What Employers and Plan Sponsors Need to Know”. Click here to register.
Contact your Conner Strong & Buckelew account representative toll free at 1-877-861-3220 for more information.