On March 10th, the American Rescue Plan Act of 2021(ARPA) was passed by both chambers of Congress and is expected to be signed by the President this week. The Act addresses several COVID relief provisions including another round of direct stimulus payments, unemployment compensation payments continuation, COVID-19 vaccine funds, and extension of the paycheck protection program among others.

In addition, the Act contains provisions that impact employee benefits, including: COBRA subsidies, enhanced paid leave tax credits, and dependent care spending account flexibility.

2021 COBRA Subsidy

The Act includes a six-month federally funded COBRA subsidy program amounting to 100% of the COBRA premium. The subsidy will apply to benefits provided under group health plans that provide medical care, including medical, dental and vision coverage and coverage through a health reimbursement arrangement (HRA). The subsidy will not apply to health FSAs. This will have an impact on current and past COBRA qualified beneficiaries.

Eligibility for COBRA Subsidy

Individuals eligible for a subsidy (called “assistance eligible individuals”) are qualified beneficiaries (e.g., employee/former employee, spouse, and dependents) who lost (or lose) employer-sponsored healthcare coverage due to an involuntary termination of employment or reduction in hours and who are enrolled in COBRA during the subsidy period (April 1, 2021 through September 30, 2021). This includes individuals who:

  1. Are already enrolled in COBRA as of April 1, 2021 and will continue to be covered during any portion of the COBRA subsidy period;
  2. Become eligible for COBRA coverage on or after April 1, 2021 and before September 30, 2021 and enroll in COBRA during any portion of the COBRA subsidy period; and
  3. Are not enrolled in COBRA as of April 1, 2021 but who would have been eligible for a subsidy if they were enrolled (i.e., individuals who are still within their COBRA maximum coverage period) and who elect coverage during the special 60-day election window (discussed below). This includes individuals who were eligible to enroll in COBRA prior to April 1, 2021 and failed to enroll or terminated coverage prior to April 1, 2021 (meaning, individuals eligible to enroll in COBRA going back to November 2019 would be provided a special election window and COBRA subsidies for their remaining maximum COBRA period, if they enroll).
  • The subsidy only applies to individuals who lost health coverage due to an involuntary termination or reduction in hours, though there is no requirement that the event be related to the COVID-19 pandemic (also note, the bill does not explicitly require the reduction in hours to be involuntary). This means individuals who lost coverage due to a voluntary termination or other COBRA qualified events (such as an employee’s death) are not eligible for the subsidy. Any COBRA subsidies provided will not be included in the gross income of assistance eligible individuals.
  • The subsidy ends when an individual has reached their maximum COBRA time period or if they become eligible for coverage under another group health plan or Medicare. Individuals would be required to notify their group health plan if they do become eligible for other coverage and will be subject to penalty if they fail to do so;
  • The ARPA subsidy does not extend COBRA coverage – coverage will still expire 18 months after coverage was lost, even if that is in the middle of the subsidy period.

Diversified Response: To incorporate the 18 months of potential COBRA continuation, this would mean looking at individuals who were made a COBRA offer as far back as November 2019. For our COBRA and TPA administrative clients, we will be running reports to identify these members to ensure they are properly notified. For our COBRA only clients, we will be sending you a notification that asks you to verify the COBRA termination reason for past COBRA eligible participants. For new Diversified clients, we will be reaching out for assistance to identify past COBRA qualified beneficiaries. This will be going out shortly, please review and return as soon as possible.

In addition to premium relief, the bill includes an optional provision that would allow an individual eligible for COBRA premium assistance to change their health plan option to a lower cost plan. Alternative coverage cannot be an excepted benefit, such as limited purpose dental or vision benefits, a QSEHRA or a flexible spending account. Allowing for a change in coverage is an option provision only, plan sponsors are not required to adopt this provision.

Diversified Response: If a plan sponsor does want to allow COBRA subsidy eligible individuals to select a lower cost health plan when electing COBRA, we would need to amend your plan accordingly, please contact your Diversified Account Executive if this is your intent.

 Notifications 

  • The Act requires group health plans to provide a notice about the availability of the new subsidy to any individual eligible to elect COBRA between April 1, 2021 and September 30, 2021.
  • Additionally, they would have to provide the notice to individuals who would be eligible for the subsidy due to job loss or reduction of hours prior to April 1, 2021. These individuals will be given an opportunity to make a new election within 60 days after notice is provided by the plan of their eligibility for the premium reduction. The Federal Government is required to provide notice templates within 30 days following passage of The Act.
  • A notice is required to be provided to individuals notifying them that their subsidy will terminate if prior to September 30, 2021. This notice is not required if an individual terminates coverage for another reason. The Federal Government is required to provide notice templates within 45 days following passage of The Act.

Special 60-day Election Period
ARPA provides a special election window for COBRA qualified beneficiaries who are not covered under COBRA as of April 1, 2021, but who would have been eligible for subsidies if they elected (or did not terminate) COBRA coverage. Only COBRA qualified beneficiaries who have not exhausted their original maximum coverage period (generally 18 months after the qualifying event under federal COBRA) can elect coverage during the special election period. These individuals have 60 days from the date they receive the notice of the special election period to elect coverage. For those who elect, coverage would go into effect retroactive to April 1, 2021.

It is important to note that ARPA does not extend the normal COBRA coverage period, but only provides a special election period for individuals. Thus, coverage will not go beyond an individual’s original maximum period of coverage.

Diversified Response: For our COBRA administration clients, we will be working with our COBRA system partner and monitoring for the sample notices. We will handle distributing them to eligible individuals. We will notify the plan sponsor of any individual who needs to be reinstated on the plan. 

COBRA Subsidy Tax Credit

The subsidy would be paid by the plan as a credit against quarterly payroll taxes. If the credit exceeds the amount of payroll taxes due, the credit would be refundable.

Diversified Response: Diversified will continue to charge our COBRA administration clients all related COBRA administrative fees during the subsidy time frame. These administrative charges will be processed on your monthly invoice.

Dependent Care Flexible Spending Arrangements

The American Rescue Plan increases the DCAP limit to $10,500 (from $5,000) for a married individual filing jointly or a single head of household and $5,250 (from $2,500) for a married individual filing separately for 2021, thus applying to any taxable year beginning after December 31, 2020 and before January 1, 2022. This is an optional provision.

Diversified Response: This would require an amendment to your Spending Account plan document. For Diversified Group FSA clients, please notify Jamie Fazio of your intent to amend the plan.

Extended Tax Credits for Paid Leave

The mandatory paid family medical leave and extended sick leave under the Families First Coronavirus Response Act (FFCRA) expired on December 31, 2020. However, tax credits were still available for employers with 50-499 employees that chose to voluntarily continue providing paid family medical leave and extended sick time through March 31, 2021. The Act extends the availability of the tax credits for voluntary compliance through September 30, 2021.

  • The qualifying reasons for taking paid family medical leave and extended sick time have been expanded to include time off to receive or recover from the COVID-19 vaccination.

Please feel free to reach out to Diversified Group’s Compliance team with any questions:

Dave Follansbee, VP of Operations and Compliance
dfollansbee@diversifiedgb.com or (860) 295-6531

Laura Williams, Business Development and Compliance Consultant
lwilliams@diversifiedgb.com or (860) 612-8644

DG Compliance