American Rescue Plan Act of 2021: Full COBRA Premium Subsidies and More
The American Rescue Plan Act of 2021 (“ARPA”), which became law on March 11, 2021, provides significant new relief to individuals affected by the COVID-19 pandemic. ARPA’s relief provisions include a full COBRA premium subsidy, expansion of the Affordable Care Act (“ACA”) premium tax credits, and a temporary increase to the dependent care flexible spending account (“FSA”) limit.
COBRA Premium Subsidy
ARPA creates a full premium subsidy (i.e., equal to 100% of the COBRA premium) for federal and comparable state COBRA continuation coverage for “assistance eligible individuals,” which generally includes any employee or dependent who loses group health plan coverage due to an involuntary termination of employment or a reduction in hours. The full premium subsidy, which appears to include the 2% administrative fee, applies for the period from April 1, 2021 through September 30, 2021, unless terminated earlier on one of the following dates:
- The date that the individual becomes eligible for another group health plan (such as through a group health plan offered by a new employer or offered by a spouse’s employer);
- The date that the individual becomes eligible for Medicare; or
- The date that the individual exhausts their maximum COBRA period.
Individuals are required to notify the group health plan providing COBRA if they become eligible for another group health plan or Medicare. Individuals are subject to a penalty of $250 if they fail to provide the required notice (or 110% of the COBRA premium subsidy if the failure is intentional), unless the failure was due to reasonable cause.
Funding the COBRA Premium Subsidy
During the period that an assistance eligible individual is eligible for the subsidy, the individual does not need to pay the COBRA premium. Instead, the premium is “advanced” by the employer or the insurer (i.e., insurance carrier), and then reimbursed by the government through a refundable tax credit against the taxpayer’s Medicare tax. For fully insured group health plans subject to federal COBRA and self-funded group health plans, the employer is eligible for the tax credit. For fully insured group health plans not subject to federal COBRA (e.g., a group health plan sponsored by an employer with less than 20 employees), the insurer is eligible for the tax credit. For COBRA coverage provided under a multiemployer (union) plan, the multiemployer plan is eligible for the tax credit.
Please note that we mistakenly stated in our webinar on Thursday, March 11, 2021 that the insurer of a fully insured group health plan was eligible for the credit against the insurer’s Medicare tax. For fully insured group health plans that are subject to federal COBRA, it is the employer—not the insurer—that is eligible for the credit against the employer’s Medicare tax. This means that, like employers that sponsor self-funded group health plans, employers that sponsor fully insured group health plans that are subject to federal COBRA must advance the COBRA premium subsidy to assistance eligible individuals.
Changing COBRA Options
An assistance eligible individual may change coverage to a lower-cost coverage option than the individual’s current COBRA coverage option. The individual must make the change within 90 days of receiving the revised COBRA election notice that informs the individual of this opportunity, if permitted by the employer sponsoring the plan (which is optional to the employer). But the lower-cost option cannot be an excepted benefit (such as dental only or vision only coverage), a qualified small employer health reimbursement arrangement, or a medical FSA.
ARPA also creates a special election period, or “second-bite-at-the-apple,” for assistance eligible individuals who did not elect COBRA continuation coverage but who would otherwise be eligible for the COBRA subsidy. In addition, there is a special election period for any individual who elected COBRA continuation coverage and discontinued such coverage before April 1, 2021. These individuals may elect COBRA continuation coverage within 60 days of receiving the required employer notice of the opportunity. The coverage will be effective with the first period of coverage beginning on or after April 1, 2021. Since this notice must be provided by May 31, 2021 (as explained below), this election cannot be made later than July 30, 2021. Furthermore, the coverage will terminate as of the end of the original COBRA continuation period (as if the individual elected COBRA during the individual’s initial 60-day election window or had not terminated COBRA early).
Miller Johnson Insight: Nothing in ARPA rescinded or changed the Department of Labor’s (“DOL”) guidance in EBSA Disaster Relief Notices 2020-01 and 2021-01. The DOL guidance in these notices provides that employee benefit plans must disregard the “outbreak period” for a period of up to one year when determining certain deadlines, such as deadlines for COBRA elections and premium payments. See our previous client alerts here and here. The outbreak period is the period from March 1, 2020 until the date that is 60 days after the President’s national emergency declaration for COVID-19 expires. Presumably, an individual who hasn’t yet elected COBRA as of April 1, 2021 but is still eligible to make an election under the extended time period may choose:
- An election under ARPA that takes effect April 1, 2021 at no cost; or
- An election that is retroactive to the date coverage was lost (but COBRA premiums must be paid for coverage before April 1, 2021).
We are hopeful that the DOL and IRS will issue additional guidance on this issue.
Revised COBRA Election Notices
During the period of April 1, 2021 to September 30, 2021, the COBRA election notice must include “clear and understandable language” about the availability of the COBRA premium subsidy, and, if permitted by the employer, the ability for the individual to enroll in a different coverage option under the group health plan.
The Secretaries of the DOL, Health and Human Services (“HHS”), and Treasury will issue guidance on an “alternative notice” that must be sent to participants in a fully insured group health plan that is not subject to COBRA (i.e., the plan is sponsored by an employer with less than 20 employees) who become eligible for continuation coverage under a state law that is comparable to COBRA.
ARPA also provides a list of additional content that is required to be included in both notices. The notices should include:
- The forms necessary for establishing eligibility for the COBRA premium subsidy;
- The name, address, and telephone number necessary to contact the plan administrator or another person about the COBRA premium subsidy;
- The individual’s rights to an extended election period under the “second-bite-at-the-apple” exception;
- Information about the individual’s obligation to notify the group health plan of eligibility under another group health plan or Medicare;
- A description of the individual’s right to the COBRA premium subsidy; and
- Information about the individual’s right to switch coverage options (if allowed).
For assistance eligible individuals who became entitled to COBRA before April 1, 2021 and individuals who are eligible to elect COBRA under the “second-bite-at-the-apple,” these individuals must be provided a notice with “clear and understandable language” about the COBRA subsidy and the ability to switch coverage options (if allowed) by May 31, 2021.
Notice of Termination of COBRA Premium Subsidy
ARPA provides that the COBRA election notice requirements will not be satisfied unless a notice with the following information is also provided:
- A statement that the COBRA premium subsidy will end soon and “prominent identification” of the date that it will end; and
- A statement that the individual may be eligible for coverage without a COBRA premium subsidy through COBRA or another group health plan.
The notice is not required if the COBRA premium subsidy is terminated due to eligibility for another group health plan or Medicare. The notice must be provided no more than 45 days and no less than 15 days before the date the date that the COBRA premium subsidy will end for the individual. The DOL (along with Treasury and HHS) must issue a model notice by 45 days after enactment of ARPA.
Affordable Care Act Premium Tax Credit Subsidies
Currently, premium tax credits (“PTC”) are only available to individuals whose household income is between 100% and 400% of the federal poverty level, and who purchase coverage through an ACA Marketplace. ARPA removes the upper limit of 400% for the 2021 and 2022 tax years. This may increase the number of people who get a PTC. Since the PTC is the “trigger” for penalties under the ACA employer mandate, this may increase the exposure of applicable large employers (generally employers with 50 or more full-time employees) that are subject to the ACA employer mandate in 2021 and 2022, but only those applicable large employers that didn’t offer affordable, minimum value coverage to all of the employer’s ACA full-time employees.
In addition, the amount of the premium tax credit is increased because the amount that an individual must contribute to the cost of coverage has been decreased. Under ARPA, individuals with incomes of 400% of the federal poverty level or more must contribute 8.5% of their household income toward coverage (instead of 9.5% before ARPA). However, this does not change the affordability percentage for purposes of the ACA employer mandate.
ARPA also provides special support for individuals who are eligible for unemployment compensation in 2021. A taxpayer who receives or is approved to receive unemployment compensation for a week or more in 2021 will not be required to pay any premium for coverage obtained through the Marketplace in 2021.
Finally, an individual’s advance PTC in 2020 that is in excess of the eligible amount (determined when filing his or her tax return) will not be required to be repaid.
Increase to Dependent Care Flexible Spending Account Limit
ARPA increases the maximum amount that may be excluded from an employee’s gross income under a dependent care FSA from $5,000 ($2,500 if married filing separately) to $10,500 ($5,250 if married filing separately) for the 2021 tax year. This means that employers may permit eligible employees to make higher contributions to their dependent care FSAs for 2021. This is an optional change that, if allowed by the employer, requires an amendment to the dependent care FSA. Retroactive amendments are permissible, provided that the amendment is adopted by the last day of the 2021 plan year, and the plan is administered consistently with the terms of the amendment.
ARPA provides new relief that will be welcome news to individuals affected by the COVID-19 pandemic. However, employers sponsoring group health plans should consult with their third party COBRA administrators as soon as possible to ensure compliance with ARPA’s required changes. In addition, employers should consider whether they want to adopt an amendment to increase the dependent care FSA maximum limit for their employees for 2021 (which may be counter-intuitive for employers that previously amended their dependent care FSAs to allow an unlimited carryover from 2021 to 2022).
If you have any questions, or if you need assistance preparing an amendment or communication to employees, please contact one of the Miller Johnson employee benefits attorneys.