(COBRA Subsides & Dependent Care Increase / FSA)
President Biden signed the $1.9 trillion American Rescue Plan Act (ARPA) last week, marking the passage of yet another massive stimulus package aimed at providing economic relief to businesses and individuals.
While the legislation makes some significant, but temporary, changes to ACA exchange subsidies and COBRA subsidies, some provisions are simply extensions of provisions already in place. For example, the legislation provides an additional $7.5 billion in funding for the Paycheck Protection Program but makes only changes to the program itself, such as adding to the list of businesses that could qualify for the loan. The legislation also extends the employer retention credit previously established by the CARES Act last year. The ERT offers a temporary refundable credit against applicable employment taxes for each calendar quarter during 2020. All employers, regardless of size, including tax-exempt organizations, can receive the credit as long as their business has been financially impacted by the pandemic. ARPA extended this benefit through 2021.
How Does This New COVID-19 Legislation Impact COBRA?
One of the more pertinent provisions in ARPA is the impact it has on COBRA subsidies moving forward. The legislation offers federal subsidies for COBRA premiums at 100 percent coverage. These subsidies apply from April 1 to September 30, but they are not retroactive.
Organizations will be required to cover the monthly premium expense but will be able to reimburse these expenses through a quarterly credit against payroll taxes. If the overall amount an employer pays for subsidized coverage is greater than its quarterly tax liability, it may claim a refund. One major component of this subsidization that sets it apart from a normal COBRA-election period is that it allows qualified individuals to make a prospective COBRA election for the period beginning April 1 without requiring payment of premiums retroactive to the original loss of coverage.
In regards to eligibility, any employee who lost health coverage for qualifying reasons between November 1, 2019, and September 31, 2021, could take advantage of COBRA subsidies. More specifically, these subsidies will be available to any previously covered employee or family member who may have lost coverage due to involuntary termination or reduction of hours and are still within their 18-month eligibility period. Any individual who loses their job from now until September will be able to instantly elect to stay on their employer’s health plan. However, as previously mentioned, an individual is only eligible if their termination was involuntary. It is also available to those who did not elect COBRA when initially eligible, or anyone who elected but subsequently dropped coverage.
Subsidized coverage will terminate if the qualified individual exhausts the 18-month COBRA period prior to September 30. It could also end if the individual becomes eligible for coverage under another group health plan during the subsidy period or becomes eligible for Medicare. Additionally, since COBRA-election deadlines were already extended as a result of the pandemic, many individuals are still within their original COBRA-election periods.
Those who are eligible under these parameters can sign up during a 60-day SEP beginning April 1. Plan administrators will be required to amend existing COBRA notices and share a separate document with forms necessary for the employee to establish eligibility, but they must act quickly due to the relatively short timeframe. For efficacy’s sake, organizations should begin identifying potentially eligible employees as soon as possible.
Several details of the rollout of this will be decided in regulatory guidance from the relevant federal agencies. We anticipate this federal guidance to include precisely how to set up these provisions, likely prior to the implementation date of April 1. Specifically, the Treasury Department may permit an advance credit for employers, while the Department of Labor is expected to issue model COBRA notices addressing the subsidy.
Dependent Care Account Increase
Families will also benefit from an increase in the amount that can be set aside for a dependent-care FSA. Although the Consolidated Appropriations Act that passed at the end of 2020 allows a rollover of funds for 2020, ARPA has increased the threshold for 2021 to $10,500 in a dependent-care account instead of the normal $5,000. Employers must adopt this provision in order for employees to increase their elected funds for their dependent-care FSA – it is not mandatory for employers to do this so FSA holders must check with the employer before increasing their contribution levels.
DDI is tracking the ARPA legislation carefully and will provide additional implementation information once it is available.
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