Earlier this week the American Rescue Plan Act of 2021 (“American Rescue Plan” or “ARPA”) was approved by the House and Senate, and President Biden signed this bill into law on Thursday, March 11, 2021. The American Rescue Plan is the latest COVID-19 relief bill and contains many provisions aimed to help Americans in a variety of ways.
Included in this bill are two specific provisions tied to employee benefits. Here is an overview of these two provisions:
A full subsidy of COBRA premiums from April 1, 2021 through September 30, 2021.
The Dependent Care FSA limit is increased to $10,500 for 2021.
- This subsidy would cover 100% of the cost of COBRA for qualifying individuals (excluding Health FSAs) from April 2021 through September 2021 (or through the end of COBRA, if earlier).
- Individuals will qualify for this subsidy if they experienced a COBRA qualifying event due to either an involuntary termination or a reduction in hours worked. Individuals who terminated employment voluntarily would not qualify for this subsidy.
- A qualifying individual is also someone whose COBRA coverage (typically 18 months) crosses into the subsidy period beginning on April 1, 2021. This means that some individuals whose involuntary termination or reduction in hours occurred:
- During the subsidy period
- Prior to the subsidy period but they have existing COBRA coverage extending into the subsidy period.
- Prior to the subsidy period and have not elected COBRA. But if they had elected, coverage would have extended into the subsidy period. (This includes those who elected and subsequently dropped COBRA coverage before the subsidy period begins.)
- An individual will be disqualified from this subsidy on the earlier of:
- The individual becoming eligible for other group health plan coverage; or
- The end of the COBRA maximum coverage period.
- Individuals who qualify for this subsidy and who elect COBRA will not have to pay premiums between April 1, 2021 and September 30, 2021. The monthly COBRA premium for all benefits for these months will be $0, with the exception of continuation coverage for Health Flexible Spending Accounts which falls outside the scope of this subsidy.
- Employers and/or insurers will receive a refundable tax credit for the subsidy (depending on the type of plan: self-funded versus full-insured).
- Qualifying individuals have the option to elect COBRA either retroactive to their original COBRA effective date if prior to April 1, 2021 (in which case, full payment of premiums prior to April 1, 2021 would be required) or an election can be made with an April 1, 2021 effective date. The latter may lead to a gap in coverage.
- If a qualifying individual elects coverage and their COBRA coverage lasts beyond September 30, 2021, full payment of premiums will commence effective October 1, 2021.
- Though not required, as part of this bill employers may also permit qualified beneficiaries to change their medical plan option. The premium for the new medical plan selected cannot exceed the premium for the original medical plan. This provision applies to the medical plan only (not dental, vision, etc.).
What is Sentinel doing next?
- The ARPA allows a plan to adopt an increased Dependent Care FSA limit of $10,500 for the 2021 calendar year.
- This limit is not mandatory; an employer will have the option to opt-in to the higher limit.
- Just like current Dependent Care FSA rules, the limit is cut in half to $5,250 for married individuals who file separate tax returns.
- A plan amendment, executed no later than December 31, 2021, will be required in order to formally adopt this higher limit, though a plan may operate at the higher limit prior to formally adopting the provision via an amendment.
- Unless additional action is taken by legislators in the coming months, the Dependent Care maximum is set to drop back down to $5,000 for the 2022 calendar year.
As a next step, Sentinel will be keeping a close eye on additional guidance issued by agencies such as the IRS and DOL. This guidance will help to clarify the many outstanding questions regarding this bill. Once those questions are answered, Sentinel will work with employers for whom we provide FSA and/or COBRA administration services. This includes the following:
- Reaching out to employers to gather key information related to the COBRA subsidy
- Communicating the COBRA subsidy offering to those individuals who qualify
- Reaching out to employers to solicit opt-ins for the Dependent Care maximum increase adoption
In the interim, should you have questions on the ARPA, please contact your Sentinel FSA and/or COBRA Account Manager directly.
Download the complete list of 2021 limitations for benefit plans (PDF).