On March 11, 2021, the American Rescue Plan Act (the “Act”) was signed into law by Pres. Joe Biden, with several provisions relating to expanded access to healthcare during the COVID-19 pandemic. This compliance update focuses on (1) a 100% subsidy of COBRA premiums during the period of April 1, 2021, through September 30, 2021; (2) Increases in annual contribution limits for the dependent care assistance program (DCAP); and (3) a voluntary employer extension of FFCRA Paid Leave & Tax Credits.
Subsidies for cobra coverage:
Eligibility for the Subsidy
The Act provides for a generous COBRA subsidy during the period of April 1, 2021, through September 30, 2021, to an “assistance eligible individual” (an “AEI”), which includes a qualified beneficiary who is eligible for COBRA coverage due to (1) an involuntarily termination; (2) a loss in coverage from an involuntary reduction in working hours; or (3) prior eligibility for COBRA coverage. Most importantly, this includes qualified beneficiaries that elected COBRA coverage prior to April 1, 2021. The Act excludes premium assistance to those that experienced a termination of reduction in hours on a voluntary basis.
Extended Election Period: The Act also extends subsidies to those employees that, prior to April 1, 2021, were involuntarily terminated or experienced a reduction in working hours and were eligible for COBRA coverage, but declined to elect; and to those who had elected, but had then discontinued coverage before April 1, 2021. Enrollment for these employees begins April 1, 2021, and extends 60 days following issuance of the mandatory COBRA notice (detailed below). For purposes of COBRA tracking and eligibility, the date of COBRA eligibility starts during the subsidy period and is not retroactive to the date of the original qualifying event. Further guidance is needed as to how this reconciles with EBSA Disaster Relief Notice 2021-01, which suspended the COBRA election period and altered termination dates during the COVID-19 pandemic.
Additionally, the Act allows eligible employees (at the discretion of the employer) to elect COBRA from a different health plan in which the employee is enrolled, as long as (1) the individual is eligible for the plan; (2) the premiums do not exceed that of the current plan in which the employee is enrolled; and (3) the plan is offered to similarly situated employees. COBRA recipients cannot transfer into a plan that is an excepted benefit under the Affordable Care Act, a qualified small employer health reimbursement arrangement (QSEHRA), or an FSA.
The Act has three separate provisions relating to notices:
o the forms necessary for establishing eligibility for premium assistance;
o the name, address, and telephone number necessary to contact the plan administrator and any other person maintaining relevant information in connection with such premium assistance;
o a description of the Extended Election Period;
o a description of the obligation of the individual to tell the employer/plan administrator if he is eligible for other group health coverage or Medicare, or be subject to a $250 penalty (higher If intentional);
o a description, displayed in a prominent manner, of the qualified beneficiary’s right to a subsidized premium and any conditions on entitlement to the subsidized premium; and
o a description of the option of the qualified beneficiary to enroll in different coverage, if permitted by the employer.
The Act does not specify whether the DOL will provide an updated model COBRA notice or separate notice, but further guidance is expected.
Length of Subsidies
Premium assistance under the Act expires on or after the earliest date in which the individual is eligible for coverage under a group health plan (excluding excepted benefits (such as dental or vision), FSA, or QSEHRA) or on the first day the individual is eligible for Medicare. An AEI is required to notify the employer/plan administrator of eligibility for other group coverage, or pay a penalty of $250, or for intentional failures, $250 or 110% of the premium assistance received, whichever is higher. These penalties can be excused if the individual can show that the failure was due to a reasonable cause and not willful neglect. Furthermore, the premium assistance ends at the end of the individual’s maximum COBRA period (18-months) or when assistance under the Act expires on September 30, 2021, whichever is earlier.
Funding of Subsidized COBRA premiums
The Act fully subsidizes health benefits under an ERISA-based plan – including medical, dental, and vision – to any COBRA qualified beneficiary during this defined period. The Act does not apply to plans that are not subject to ERISA or the Public Health Service Act. Employers are required to fully cover the cost of COBRA premiums, but will be subsequently reimbursed via a refundable tax credit through required quarterly employment taxes. Employers also have options to offset costs, including: requesting a credit advance from the IRS, withholding Medicare taxes in anticipation of the credit, or subsequently requesting a refund for paid amounts in COBRA premiums that exceed Medicare tax liability.
The Act requires employers to refund COBRA premiums for eligible individuals paid during the period on or after April 1, 2021 through September 30, 2021. The premiums must be refunded no later than 60 days after the date on which an individual made the premium payment. An employer claiming a credit for premium assistance cannot also claim a credit for the same amounts under the Families First First Coronavirus Response Act (FFCRA), which includes emergency paid sick leave and extended Family and Medical Leave Act. Further guidance is expected.
Action Items for Employers and Plan Administrators
The Act provides a limited amount of time to comply with the requirements, but focus areas include:
(1) identifying individuals eligible for the Extended Election Period, which includes employees who prior to April 1:
(2) Identify individuals entitled to receive a notice regarding the subsidy
(3) Deciding whether the group will allow individuals to enroll in a different plan
(4) Reviewing and updating internal processes to comply with the notice and timing requirements
Dependent Care Assistance Program (DCAP):
The Act increases the annual contribution limit for a dependent care assistance program (DCAP) from $5,000 to $10,500 (and from $2,500 to $5,250 for married individuals filing taxes separately) for taxable years beginning after Dec. 31, 2020, and before Jan. 1, 2022. Employers who elect to implement this change can do so retroactively if the plan amendment is adopted by the last day of the plan year in which it is effective; and the plan operates consistently with the terms of the amendment until it is adopted.
FFCRA Paid Leave & Tax Credits
Under the Families First Coronavirus Response Act (FFCRA), passed in March 2020, two types of paid leave were temporarily created, including paid sick leave, and paid extended family medical leave. Both types of leave expired December 31, 2020, but subsequently, employers could voluntarily extend leave (and obtain tax credits to offset the leave costs) through March 31, 2020.
The Act further allows employers to extend paid leave (and obtain associated tax credits) through Sept. 30, 2021, with paid time-off now permitted for COVID-19 testing and immunization. Wages under emergency family and medical leave are increased from $10,000 to $12,000 per employee and an additional 10 days of emergency paid sick leave is provided for employees, beginning April 1, 2021.