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Mar 2021
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March 17, 2021

COBRA Subsidies and Other Important Benefit Provisions in the American Rescue Plan Act

President Joe Biden signed the American Rescue Plan Act (ARPA) last week, the latest COVID-19 pandemic federal stimulus bill whose provisions impact employer-sponsored health and welfare plans.
 
Subsidized COBRA Coverage
 
Employees and their enrolled dependents whose COBRA qualifying event was the employee’s involuntary termination or reduction in hours (whether voluntary or involuntary) are eligible for 100% employer-subsidized COBRA coverage for the six-month period beginning April 1, 2021, and ending September 30, 2021. Subsidized coverage will end if the individual becomes eligible for coverage under another employer’s group health plan or becomes eligible for Medicare.
 
An employer with self-insured coverage must cover the premiums for this group, but can claim a tax credit for these premiums against the employer portion of Medicare tax on the employer’s quarterly federal payroll tax return. To the extent that the subsidized premiums exceed the payroll taxes, the employer can seek a refund of an overpayment. The IRS is also directed to provide guidance on how to obtain the credit in advance. For an insured arrangement, the insurer will generally cover the premiums and seek reimbursement.
 
Plan administrators must provide a notice regarding COBRA subsidized coverage to individuals who become eligible for COBRA between April 1, 2021, and September 30, 2021. Plan administrators must also provide individuals who are enrolled in subsidized COBRA coverage a notice that subsidized coverage is ending, between 45 days and 15 days prior to the date the subsidized coverage ends.
 
Further, the ARPA provides for a special election period for qualified beneficiaries who are not currently enrolled in COBRA, but who would be eligible for subsidized COBRA coverage if they had elected or continued COBRA. The plan administrator must provide a notice to such individuals by May 30, 2021, that explains the opportunity to elect subsidized COBRA coverage. The individual would then have 60 days from the date of the notice to elect subsidized COBRA coverage.
 
The ARPA additionally gives employers the option of allowing individuals who are eligible for subsidized COBRA coverage a 90-day window to change their election going forward to a plan with a lower premium.
 
Next Steps
We recommend employers take the following actions regarding the new COBRA subsidies (the employer may need to coordinate with its COBRA administrators):

  • Identify employees who experienced an involuntary termination or a reduction in hours that caused the employee to lose plan eligibility between October 1, 2019, and March 31, 2021.

    • Send individuals not currently enrolled in COBRA a special election period notice that provides a 60-day window to elect subsidized COBRA coverage.

    • Send individuals currently enrolled in COBRA a subsidy notice.

  • For employees who experience an involuntary termination or a reduction in hours that causes the employee to lose plan eligibility between April 1, 2021, and September 30, 2021, include the subsidy notice with the employee’s COBRA election notice.

  • Track qualified beneficiaries’ subsidy expiration date, and send the individual a notice between 45 and 15 days before the subsidy expires.

  • Decide whether to allow individuals a 90-day window to change COBRA plan elections during the subsidy period, and amend the plan accordingly.

  • Develop new notices (note that the ARPA instructs the Department of Labor to draft model notices):

    • Notice regarding the availability of subsidized COBRA coverage.

    • Notice regarding the end of COBRA subsidized coverage.

    • Notice regarding the opportunity to re-elect subsidized COBRA coverage.

    • Notice regarding the 90-day window to change COBRA elections (if the employer intends to adopt this provision). 

Some employees eligible for this subsidy may also be entitled to a notice regarding the suspension of COBRA election and payment deadlines during the COVID-19 pandemic, so employers may want to consider how to coordinate this notice with the COBRA subsidy notice.
 
Dependent Care FSA Maximum
 
The ARPA temporarily increases the maximum dependent care flexible spending account (FSA) limit from $5,000 ($2,500 for married individuals filing separately) to $10,500 ($5,250 for married individuals filing separately). This temporary increase is only effective for the 2021 calendar year.
 
Next Steps
Employers who want to increase their dependent care FSA limit can do so now, but must amend their cafeteria plans by the end of the plan year in which the change is effective (i.e., December 31, 2021, for calendar year plans).
 
If you have questions about how the ARPA affects your health and welfare plans, please contact Stephanie Grant, Norbert Kugele or another member of Warner’s Employee Benefits/Executive Compensation Practice Group.

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