Congress passed and President Biden signed the American Rescue Plan Act (ARPA) providing $1.9 trillion in a sweeping COVID-19 relief package. This legislation contains several provisions that directly impact employee benefits and require urgent attention by employers to implement changes on short notice. The highlights include:
- Eligible Cobra individuals may now have coverage at no cost;
- Dependent Care FSA exclusion increased;
- Marketplace premium costs now capped at 8.5% of person’s income and persons with income over 400% are now eligible; and
- FFCRA extended and 10 day (80-hour) limit is reset starting April 1, 2021.
For more information on each, see below:
COBRA Premium Subsidies and Extended Election Period
ARPA includes a 100% COBRA premium subsidy for assistance eligible individuals (AEIs) effective during the subsidy period of April 1, 2021 – September 30, 2021. AEIs are qualified beneficiaries who are eligible for and elect COBRA for a period of coverage within the subsidy period due to involuntary termination of employment or reduction of hours. For individuals who would otherwise be an AEI but do not have a COBRA election effective April 1, 2021 (e.g., individuals who did not elect COBRA coverage or individuals who elected COBRA coverage but discontinued prior to April 1, 2021), they are also eligible for the COBRA subsidy during an extended election period. This extended election period begins April 1, 2021 and ends 60 days after the employer provides required notification of the extended election period. For both groups of qualified beneficiaries, the COBRA subsidy period will end prior to September 30, 2021, if the individual’s COBRA maximum coverage period expires or the individual becomes eligible for coverage under Medicare or another group health plan.
The employer of self-insured plans and the carrier of fully insured plans cover the cost of the COBRA premium during the subsidy period. They are then reimbursed by the federal government through a credit against payroll taxes, or for credit amounts exceeding payroll taxes, as a refund of an overpayment.
Employers may (but are not required to) permit these qualified beneficiaries to elect a different coverage option, instead of requiring that they be covered by the same plan that covered them on the day before the date of the qualifying event. However, the different coverage cannot have a premium that exceeds the premium for the individual’s existing coverage and must also be offered to active employees.
Finally, employers will be subject to new notice requirements related to advising these qualified beneficiaries of the availability of this new COBRA subsidy, the option to enroll in different coverage (if permitted), and the expiration of the COBRA subsidy. The DOL will publish model notices by April 10, 2021.
Temporary Increase in DCAP Limits for 2021
ARPA temporarily increased the maximum amount of Dependent Care FSA benefits that can be excluded from income from $5,000 to $10,500 (or $2500 to $5,250 for taxpayers who are married filing separately) for the 2021 tax year. Employers must amend their cafeteria plan to implement this change, but such amendments may be retroactive if adopted no later than December 31, 2021.
Enhanced ACA Subsidies for Exchange Coverage
For tax years 2021 and 2022, ARPA temporarily expanded the ACA premium tax credit (PTC) for exchange coverage. Under existing rules, PTCs are only available to taxpayers with household incomes between 100% and 400% of the federal poverty line (FPL). ARPA eliminates this upper income limit for eligibility allowing more individuals to qualify for PTCs, and it increases the amount of the PTC across all income bands with premium costs capped at 8.5% of household income.
While these PTC enhancements will help individuals seeking more affordable health coverage options, they also present a challenge for applicable large employers (ALEs). A full-time employee’s receipt of a PTC is the potential trigger for Section 4980H employer shared responsibility penalties. Thus, ALEs that do not offer affordable, minimum value coverage should consider whether they want to change their benefits strategy given this increased penalty exposure.
Extension of Employer Credits for FFCRA Paid Sick and Family Leave
ARPA extends the Families First Coronavirus Response Act (FFCRA) employer tax credits through September 30, 2021. As a reminder, the FFCRA requirement for small and midsize employers to provide paid sick and family leave for certain COVID-19 related reasons expired on December 31, 2020, but the Consolidated Appropriations Act allowed employers to voluntarily continue providing it through March 31, 2021.
In addition to extending the optional credits, ARPA restarts the 10-day (80-hour) limit for qualified sick leave taken between April 1, 2021 and September 30, 2021; increases the aggregate maximum limit for qualified family leave wages from $10,000 to $12,000; and adds new reasons for which employees may take paid sick or family leave, which include leave for time awaiting COVID-19 test results, to obtain a COVID-19 immunization, or to recover from any adverse health impacts resulting from a COVID-19 immunization. The legislation requires the Department of Treasury to issue regulations or other guidance implementing these new changes, so employers who opt to continue providing this paid sick and family leave should be mindful that additional guidance is likely forthcoming.e is likely forthcoming.