The American Rescue Plan Act of 2021 (ARPA) was signed into law March 11, 2021. Particularly relevant to employers are its provisions regarding premium subsidies and additional enrollment rights for certain individuals in connection with continuation coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA) and a temporary increase in the maximum amount excludable from income under dependent care assistance programs (DCAP).
Subsidy - ARPA provides a 100% COBRA premium subsidy for certain assistance eligible individuals (AEI) during the six-month period beginning April 1, 2021, and ending September 30, 2021 (subsidy period). An AEI is a qualified beneficiary who becomes eligible for and elects COBRA for a period of coverage within the subsidy period due to involuntary termination of employment or reduction of hours. The employer or insurer, as applicable, will pay 100% of an AEI’s COBRA premium during the subsidy period and will be reimbursed by the federal government by claiming a corresponding credit against its Medicare payroll tax liability. The subsidy will end if the AEI becomes eligible for coverage under another group health plan or Medicare. The AEI is required to notify his or her group health plan if he or she becomes eligible for such coverage. All group health plans subject to COBRA other than health flexible spending accounts (i.e., medical, dental, and vision) must provide the subsidy.
Enrollment - Individuals who would otherwise be AEIs but do not have a COBRA election in place by April 1, 2021, or who elected COBRA coverage but then discontinued it and are still within the COBRA maximum coverage period, may elect COBRA during the period beginning April 1, 2021, and ending 60 days after they are notified of the extended election period. Coverage will generally be retroactive to April 1, 2021, and continue through the COBRA maximum coverage period. Employers may, but are not required to, provide AEIs up to 90 days after they are notified of the extended election period to elect a different coverage option (that is also offered to active employees), provided that such alternative coverage cannot have a higher premium than the premium for the coverage option in which the individual had been enrolled and cannot be coverage that offers only excepted benefits.
Notices - AEIs who become eligible to elect COBRA during the subsidy period must be notified of the availability of the subsidy and, if applicable, the option to enroll in a different coverage option. AEIs who are eligible for an extended election period must be notified about the extended election period by May 30, 2021. Notice of the expiration of a subsidy is required no more than 45 days and no less than 15 days before expiration. ARPA directs the Department of Labor (DOL) to issue model notices for such purposes.
Recommended Employer Actions - Employers, in coordination with their third-party administrators or COBRA administrators, should:
- Identify AEIs as well as those individuals who would otherwise be AEIs and are within the COBRA maximum coverage period. This group is generally those employees (and their dependents) who were terminated or were subject to a reduction of hours with a loss of coverage since November 2019 and those employees (and their dependents) who will be terminated or be subject to a reduction of hours with a loss of coverage during the subsidy period.
- Provide the applicable notices to the AEIs once the model notices are available from the DOL.
- Ensure that COBRA premiums are not collected from AEIs during the subsidy period.
- Coordinate reimbursement of the foregone premiums through Medicare payroll tax credits.
- Understand whether the subsidy may apply (depending on state law) even if the employer is not subject to COBRA (e.g., employers who maintain church plans).
For 2021, ARPA increases the maximum DCAP benefits that can be excluded from income from $5,000 to $10,500 ($2,500 to $5,250 for married filing separately). A plan may be retroactively amended no later than the last day of the plan year in which the amendment is effective, provided that the plan is operated in accordance with the terms of the amendment beginning on its effective date.
If you have any questions about the COBRA or DCAP provisions of ARPA, please contact one of the attorneys in the Employee Benefits and Executive Compensation Practice Group at Bradley.