First and foremost – happy spring! The longer days and warmer weather are very much appreciated lately.
Over the last two weeks, our team has received many questions about the newly signed American Rescue Plan (ARP) Act of 2021 and how the legislation affects group health plans. While new information and guidance will continue to evolve, there are a few things that are important to highlight that employers should be aware of.
About the American Rescue Plan: On March 11th, the American Rescue Plan Act of 2021 was signed into law. The legislation is intended to provide relief from the economic burdens associated with COVID-19. You have probably read about the various funding now available for stimulus checks, the Centers for Disease Control, the paycheck protection program, state grants, and much more. The ARP also contains important provisions that affect group health plans, including COBRA and Dependent Care FSAs.
COBRA Premium Assistance: The ARP provides COBRA relief in the form of premium subsidies for assistance-eligible individuals.
- Eligibility: Assistance-eligible individuals are defined as anyone who has been involuntarily terminated OR received reduced hours and is eligible for COBRA due to that COBRA qualifying event. Participants can elect coverage beginning April 1, 2021, and ending within 60 days of receiving notice of the subsidy.
- Premium Subsidy: Assistance-eligible individuals will not be required to pay COBRA premiums during the time period of April 1, 2021, through September 30, 2021. If an assistance-eligible individual pays any portion of the COBRA premium, the amount must be reimbursed within 60 days.
- Subsidy Payment: Nothing can be charged to participants and employers are required to cover the cost of coverage upfront. Businesses can recover the cost of coverage by claiming a credit or as a refund against quarterly tax liability. Employers maintaining the plan subject to COBRA have reporting requirements and are entitled to premium assistance credit against the FICA Medicare tax imposed on it.
- Coverage Options: An employer may choose to offer assistance-eligible individuals’ different coverage, as long as the different coverage is not a more expensive plan.
- Written Notice: Plan Administrators are required to provide written notice to eligible individuals about the availability of premium assistance and the option to enroll in different coverage, if available. The Department of Labor is expected to issue model notices by April 10, 2021.
- Other Important Details:
- The COBRA premium subsidy is not available if the individual is eligible for benefits under Medicare or under any other group health plan.
- No other COBRA events (voluntary termination of employment, changes in life events, etc.) qualify
Dependent Care Flexible Spending Accounts (DCAPs): The ARP increases the amount employees can contribute to a Dependent Care FSA for any taxable year beginning after December 20, 2020, and before January 1, 2022.
- Married/Filing a Joint Return: From $5,000 to $10,500.
- Single/Married but Filing Separately: From $2,500 to $5,250.
- Employers have the option to retroactively apply these changes to their plan for the 2021 plan year.
- If you are currently offering a DCAP to your employees, your DCAP administrator should be in touch with you directly about the process your employees need to go through to change their election amounts.
Be sure to check with your DCAP administrator to make sure any changes to your plan will pass the non-discrimination test for your group.
Tax Credit Eligibility for Insurance Purchased on an Exchange: The ARP has also expanded eligibility for the premium tax credit for individuals who purchase health insurance on an Exchange.
- There is no upper limit on individuals who are eligible for the premium tax credit for 2021 and 2022.
- The ARP lowers the percentage of household income that individuals must contribute for health insurance coverage purchased on an Exchange.
To learn more about the American Rescue Plan, we have detailed advisors on our Customer Resource Center:
- The American Rescue Plan Act – Part 1 (COBRA Premium Assistance)
- The American Rescue Plan Act – Part 2 (Dependent Care Flexible Spending Accounts and Exchange Health Insurance)
Our team will continue to share guidance that may have direct impact to you and your employees as it becomes available. Expect another update from our team after April 10th once the DOL releases the model notices! In the meantime, please reach out directly if you have any questions and we are happy to help.