American Rescue Plan Act of 2021 Signed Into Law
Senior Compliance Attorney
On Thursday March 11, 2021, President Joseph Biden signed the American Rescue Plan Act of 2021 (ARPA). This sweeping legislation includes important changes and updates relative to COBRA, Dependent Care Assistance Programs (DCAPs) and FFCRA paid leaves. What follows is a general overview of these changes, with more detailed information to come once regulations are released.
Under the subtitle “Preserving Health Benefits for Workers”, the ARPA provides premium assistance to individuals and families for COBRA coverage. Specifically, the ARPA establishes premium subsidies for assistance eligible individuals (AEIs), extends certain election periods, provides certain AEIs the opportunity to enroll in different coverage offered by the employer and requires group health plans to provide notification on these new requirements.
Assistance Eligible Individuals (AEIs) are eligible for a 100% COBRA premium subsidy from April 1 -September 30, 2021. An AEI is defined as a COBRA qualified beneficiary who is eligible for AND elects COBRA for a period of time within the subsidy period due to involuntary termination or reduction of hours.
The ARPA language indicates that employers (self-funded group health plans) or insurers (fully insured plans) will pay 100% of the AEIs COBRA premium during the premium subsidy period. Payments will be reimbursed through credits against payroll taxes or as a refund for the credit amount exceeding payroll taxes. Subsidies will terminate before the maximum subsidy period for AEIs who reach the end of the COBRA maximum period (18 months) or who become eligible for Medicare or group health plan coverage during that time (April 1-September 1, 2021).
Extended Election Period
ARPA offers opportunities for individuals that did not elect COBRA or terminated COBRA early to take advantage of these subsidies:
- Employees that were involuntarily terminated or had a reduction in hours before April 1, 2021 and did NOT elect COBRA are eligible for the subsidies.
- Employees that were involuntarily terminated or had a reduction in hours before April 1, 2021 and elected COBRA but discontinued COBRA coverage before April 1, 2021 are eligible for subsidies if they are still within their COBRA maximum coverage period (18 months from qualifying event).
These individuals may elect COBRA for the period beginning on April 1, 2021 and ending 60 days after receipt of notification of this extended election period. If elected, the COBRA coverage will begin on the first of the month following election on or after April 1, 2021 and must not extend beyond the original maximum coverage period.
Plan Enrollment Option
ARPA allows group health plan administrators to permit AEIs to elect a different coverage option within 90 days after notice of this option is provided. Plans are NOT required to allow for this option. The different coverage offered cannot have a premium that exceeds the premium for the individual’s existing coverage and must be a plan that is offered to active employees.
The following notices must be provided in relation to these COBRA subsidies:
- Availability of Subsidy: Group health plans must notify AEIs who become entitled to elect COBRA during the subsidy period of the availability of the subsidy and the option to enroll in different coverage (if allowed). Existing notices may be amended or the required notice may be provided separately.
- Extended Election Period: Plan administrators must notify AEIs who are eligible for an extended election period by May 30, 2021.
- Subsidy Expiration: Group health plans must notify AEIs of subsidy expiration at least 45 days but no less than 15 days before the expiration date. This notice is not required if the AEI is terminating COBRA early due to eligibility for Medicare or another group health plan.
The Department of Labor (DOL) is instructed to issue model notices for these purposes. Expect the department to release those model notices in the near future.
DEPENDENT CARE ASSISTANCE PROGRAMS (DCAPS)
The ARPA increases the DCAP limit from $5,000 to $10,500 ($2,500 to $5,250 for taxpayers who are married, filing separately) for tax years beginning in 2021. Employers who opt to make this increase must make plan amendments no later than the last day of the plan year in which the amendment is effective. The amendments can be retroactive to the first day of the plan year.
It is important to note that the ARPA also makes changes to the Dependent Care Tax Credit (DCTC), the child tax credit and the earned income tax credit, which may impact employee tax planning.
FFCRA PAID LEAVE TAX CREDITS
The ARPA extends the FFCRA paid leave tax credit availability to September 30, 2021. The FFCRA paid leave provisions expired on December 31, 2020. However, the Consolidated Appropriations Act of 2021 (CAA) extended the available credits to March 31, 2021.
Employers may, but are not required to, continue to offer FFCRA paid leave until September 30, 2021 and receive the applicable tax credits. In addition, if employers choose to extend FFCRA paid leave, employees will have an additional ten (10) days of Emergency Paid Sick Leave (EPSLA leave) starting April 1, 2021.
Further, Emergency Family Medical Leave Extension leave for employees to care for children whose schools or place of care are closed due to COVID-19 is now capped at $12,000 in aggregate vs. the original $10,000.
The ARPA also expands the reasons for EPSLA leave to include time off from work needed to include:
- employee is seeking or awaiting the result of a diagnostic test for, or a medical diagnosis of, COVID-19 and such employee has been exposed to COVID-19 or the employee’s employer has requested such test or diagnosis, or the employee is obtaining immunization related to COVID-19 or recovering from injury, disability, illness or condition related to such immunization.
Credits for this extension will be against Medicare taxes rather than Social Security taxes. Also, the ARPA prohibits employers from discriminating in favor of highly compensated employees when providing these leaves.
ENHANCED PREMIUM TAX CREDITS
Individuals seeking coverage in the Federal Marketplace may be eligible for premium tax credits to assist with premiums. The ARPA expands these tax credits for tax years 2021 and 2021. Currently the credit limited to individuals between 100%-400% of the Federal Poverty Level (FPL). The ARPA eliminates the upper threshold limit and increases the amount of the credit by decreasing the income percentage for premium contribution. The adjusted percentages now range from 0% to 8.5%.
The majority of the American Rescue Plan Act is focused on financial relief for individuals, employers and units of government.
Employers would be well-served to review these insurance related provisions of the ARPA to understand the implications for their employment practices. We anticipate multiple federal agencies to development further interpretative rules and implementation process to answer questions about this new law.