COBRA subsidy highlights
One of the most significant provisions impacting employers will undoubtedly be the temporary COBRA premium subsidy, which will allow eligible individuals to obtain COBRA continuation coverage without paying COBRA premiums. The 100% subsidy is intended to cover the period of April 1, through September 30, 2021 (the subsidy period). Employers sponsoring group health plans may be reimbursed for the 100% COBRA premium subsidy via credits against certain payroll taxes. The tax credit is available to private employers and non-federal governmental employers subject to COBRA.
The following individuals who are or become qualified beneficiaries (employees plus affected spouses and children) as the result of an involuntary termination of employment or reduction in hours (thus excluding voluntary termination of employment) may be eligible for the subsidy:
- Individuals who were previously eligible for COBRA continuation coverage, but who did not elect COBRA and have coverage that would have extended into the subsidy period (e.g., an individual involuntarily terminated on October 1, 2020 who did not elect COBRA)
- Individuals who were previously eligible for COBRA continuation coverage, elected, but dropped, coverage, and have coverage that would have extended into the subsidy period (e.g., an individual involuntarily terminated on October 1, 2020, who elected COBRA, but did not pay premiums after December 31, 2020)
- Individuals who become eligible during the subsidy period (e.g., an individual involuntarily terminated on May 1, 2021)
These individuals must be given a new 60-day COBRA election period, and group health plans will be required not only to provide updated general COBRA notices, but also to provide updated election notices with information about the subsidy. In addition, ARPA requires plans to provide new COBRA election notices to individuals who are eligible for the new 60-day election period – i.e., individuals who were eligible previously but did not elect and those who elected but discontinued COBRA coverage (i.e., the first two categories of individuals listed above).
ARPA adds one new COBRA notice for individuals receiving the new subsidy – a notice advising an individual receiving a COBRA subsidy about the expiration of the subsidy if the subsidy terminates before September 20, 2021. This notice must be sent within a 30-day time period that begins 45 days before, and ends 15 days before, the date on which the COBRA subsidy will expire.
The Department of Labor (DOL) in conjunction with the Department of Health and Human Services (HHS) are required to provide new model notices, including an updated general notice, an updated election notice, and the end-of-subsidy notice.
Expanded subsidies under the ACA
For 2021 and 2022, ARPA eliminates the upper income limit for eligibility for premium tax credits, which is currently set at 400% of the federal poverty level, and increases the amount of the premium tax credits by decreasing the amount that an individual must contribute to the cost of coverage. Additionally, during 2021, if a taxpayer receives, or is approved to receive, unemployment compensation for a week or more, that taxpayer will be treated as eligible for premium subsidies, and any of the taxpayer’s income above 133% of the federal poverty level will be ignored for purposes of determining that individual’s contribution percentage toward the cost of Marketplace coverage.
Note that while the expanded subsidy eligibility may increase your organization’s potential exposure under the ACA’s Employer Mandate, penalties may only be triggered by full-time employees who are not offered affordable coverage meeting minimum value requirements.
Temporary increase for dependent care flexible spending accounts
Under ARPA, the dependent care FSA (DCAP) limit is increased from $5,000 to $10,500 for tax years beginning after December 31, 2020, and before January 1, 2022. A plan may be retroactively amended to include this increase as long as the plan otherwise satisfies all applicable requirements of sections 125 and 129 of the Internal Revenue Code of 1986 (including any rules or regulations thereunder) and:
- the amendment is adopted no later than the last day of the plan year in which the amendment is effective, and
- the plan is operated consistent with the terms of such amendment during the period beginning on the effective date of the amendment and ending on the date the amendment is adopted.
Extension of credits for FFCRA leave and employee retention credit
While not making additional leave mandatory, ARPA extends a qualifying employer’s ability to obtain refundable paid sick leave and family and medical leave credits through September 30, 2021 for leave under the FFCRA. However, after March 31, 2021, there will be changes to the way the credits are calculated, such as an increase in the maximum amount of wages used to calculate the credit, an increase in the maximum number of sick days an employer can count for the credit, and inclusion of a new category of leave – time off for COVID vaccinations. The credits, in a manner similar to the employee retention credit, will apply against an employer’s Medicare hospital insurance (HI) instead of the employer’s Social Security Old Age, Survivor’s, and Disability Insurance (OASDI) taxes after March 31, 2021.
In addition to extension of credits for voluntarily provided FFCRA leave during 2021, ARPA also extends the CARES Act’s employee retention credit from July 1, 2021 to December 31, 2021. After June 30, 2021, the credit will apply against an employer’s HI taxes instead of OASDI taxes. In an employer does not have sufficient tax liability, the credit will continue to be a refundable credit.
- Identify individuals who were involuntarily terminated or had a reduction in hours during the COBRA subsidy period
- Determine what changes are needed for communications to COBRA qualified beneficiaries
- Work with third-party vendor or internal COBRA administration team to provide updated and new COBRA notices based upon new model language (when released) from the DOL and HHS
- Determine what impact, if any, the expanded ACA subsidy provisions will have upon your organization’s potential exposure under the Employer Mandate
- If your organization provides a DCAP, determine whether to increase your employees’ DCAP contribution limits to $10,500 for the 2021 plan year; note that this may require employees to change current contributions for 2021 if your 2021 plan year is already underway
- Determine whether your organization qualifies for continued tax credits for providing FFCRA leave and whether your organization will voluntarily provide such leave