Co-authored by Katy Stowers. Updated April 12, 2021.
The long-awaited $1.9 trillion American Rescue Plan (ARPA) stimulus package signed into law by President Biden on March 11, 2021, is not such a relief to Human Resources and organizational leaders like you. It includes sweeping modifications to COBRA, paid sick leave provisions, and dependent care flexible spending accounts (FSAs).
First Person’s benefits and compliance experts summarized the key points of the 628-page bill that affects employers most. Access the on-demand webinar Unpacking the American Rescue Plan Stimulus here.
We pulled the most frequently asked questions about the stimulus bill from the webinar, homing in on COBRA, the Families First Coronavirus Response Act (FFCRA) and dependent care FSAs.
Consolidated Omnibus Budget Reconciliation Act (COBRA)
1. Which participants are eligible for subsidized COBRA?
Employees and their covered family members who experienced an involuntary termination of employment or a reduction in hours that lead to a loss of coverage between November 1, 2019 and September 30, 2021. These individuals must not be eligible for other group health coverage or Medicare. The termination/reduction in hours does not have to be COVID-related, and an employee terminated for poor performance will still qualify.
The Department of Labor clarified that a reduction in hours does not have to be employer-initiated, and an individual would qualify if the reduction in hours lead to a loss of coverage in situations such as such as reduced hours due to change in a business’s hours of operations, a change from full-time to part-time status, taking of a temporary leave of absence, or an individual’s participation in a lawful labor strike, as long as the individual remains an employee at the time that hours are reduced.
2. Which participants are not eligible for subsidized COBRA?
There are four groups who are not eligible:
- Employees who voluntarily terminated employment (e.g., resignation or retirement).
- Dependents who lost coverage due to the employee’s voluntary termination or due to divorce, death or aging off the plan
- Employees and their family members who were not COBRA eligible at the time of termination (an employee who wasn’t enrolled in the medical, dental and/or vision plans when employment terminated, or a part-time employee who was not benefits eligible at the time of termination).
- Employees who were terminated due to gross misconduct (a word of caution – we recommend working with employment counsel before denying COBRA due to gross misconduct).
3. What situations might employers face that may be difficult to administer?
There are still a few grey areas, and we hope to receive additional information from the Department of Labor.
- An individual who is eligible for other group health coverage is not eligible for the subsidy. Employers may have difficulty getting that information from former employees, and there’s likely no checks and balances other than the honor system.
- Someone who exhausts FMLA and is offered COBRA because they fail to return to work. It’s an unanswered question whether this would it be considered voluntary termination.
- An individual on subsidized COBRA gains a dependent through birth, adoption or marriage. The dependent can join the plan, but it’s unclear whether the dependent would qualify for subsidized coverage.
4. Does subsidized COBRA apply only to medical coverage?
No. The subsidy applies to medical, dental and vision coverage if the individual had that coverage at the original time coverage was lost. Health flexible spending accounts are not included.
5. Is coverage retroactive back to the original date that coverage was lost, or just to April 1, 2021?
If an individual elects coverage pursuant to ARPA’s special enrollment opportunity, coverage is effective April 1, 2021. Employers are not required to provide retroactive coverage. The subsidy period then runs from April 1, 2021 to September 30, 2021.
6. If someone is already on COBRA and the 18 months exhausts June 30, 2021 can they stay on COBRA until the subsidy period ends on September 30, 2021?
No. ARPA does not extend the 18-month time period of original COBRA eligibility. In this example, COBRA would still end June 30, 2021. The individual would be subsidized from April 1, 2021 to June 30, 2021, at which time coverage would end.
7. Are plan sponsors required to offer the subsidized coverage, or is it a choice?
The ARPA requires all group health plans subject to federal COBRA or state mini-COBRA laws to offer subsidized coverage and provide a special enrollment period.
8. Does the COBRA subsidy also apply to dependents, such as spouses and children?
Yes. Spouses and children who were covered under an employer’s group health plan (including medical, dental and vision) and were therefore eligible for COBRA at the time of involuntary termination or reduction in hours are also eligible for subsidized coverage.
9. Will our COBRA administrator provide a list of subsidy-eligible individuals to whom special enrollment must be offered?
COBRA administrators are working to identify potentially eligible individuals but the employer will need to confirm eligibility as well. You should audit plan and personnel records to determine whether any former employees were involuntary terminated or subject to a reduction in hours during the relevant timeframe (November 1, 2019-April 1, 2021) to determine who may be eligible.
10. When is the election period?
Eligible individuals will have 60 days after receiving the election notice to enroll in subsidized coverage, with a retroactive effective date of April 1, 2021.
11. Does this only apply to federal COBRA, or does it also apply to plans covered by state mini-COBRA laws?
Yes. The requirement to offer subsidized COBRA coverage also applies to state continuation coverage.
12. Who will receive the tax credit for the subsidized coverage?
For organizations with a self-funded health plan, the employer will file for and receive the tax credit.
For organizations with a fully insured health plan, the employer will file for and receive the tax credit. (Note: Interpretive guidance has been updated since our initial webinar on March 17. Initial interpretations indicated that the insurance carrier would receive the tax credit for fully insured plans. This has been updated to accurately reflect that the employer would receive tax credits due to the employer’s payment of fully insured premiums.)
Families First Coronavirus Response Act (FFCRA)
1. Is paid sick time and paid family medical leave under FFCRA required in 2021?
No. Although you may voluntarily offer paid sick time and paid family medical leave pursuant to the FFRCA and its interpretive guidance, the mandate to do so expired on December 31, 2020. These paid leaves are optional and available through September 30, 2021.
2. When do the new paid leave scenarios begin (employer requested COVID testing, receiving the vaccine, recovering from side effects of the vaccine)?
April 1, 2021. Any requested leave for these scenarios prior to April 1, 2021 would not be covered by FFCRA leave.
3. Can we choose to offer leave under Emergency Paid Sick Leave (EPSL) but not Expanded FMLA (EFMLA) or vice versa?
Yes. Because offering paid leave under either provision is voluntary, you can choose to only offer one type of leave. However, should you choose to offer either of these voluntarily paid leaves, we recommend adopting all eligible reasons for each category of paid leave unless and until the Department of Labor guidance provides otherwise.
4. If we extend FFCRA, can we require proof of vaccine?
Yes. You can require any employee who requests paid leave for purposes of receiving a vaccine to provide proof that the vaccine was administered. We recommend keeping documentation of any paid leave scenario for which you are seeking a tax credit.
5. If we require employees to get a COVID-19 test, should we still require proof for purposes of EPSL?
Yes. You want to have documentation for any paid leave scenario for which you are seeking a tax credit.
6. If we extend EPSL under FFCRA, do we have to provide the additional 80 hours as of April 1, 2021?
Yes. If you choose to extend EPSL, you would need to reset the leave bank to 80 hours for those who have already used some or all of their allotment.
7. Under the extended leave provision, does EPSL and paid FMLA still apply only to employers with fewer than 500 employees, as well as governmental and municipal employers?
Correct. These provisions are unchanged.
Dependent Care FSA Increase
1. Are plan sponsors required to allow employees to increase their Dependent Care FSA election?
No. The increase is optional.
2. If we allowed a carryover of funds from 2020, can employees also change their election for 2021 for the extra $10,500?
Employees are limited to $10,500 (married filing jointly/head of household) or $5,250 (single filer) for the 2021 tax year. Any amount that was carried over from 2020 would apply toward these maximum limits.
For example, Jane carried over $3,000 in unused funds from 2020, and she elected $5,000 for 2021. Can she increase her election? Yes. If you allowed the increase, she could elect an additional $2,500, making her total election for 2021 $10,500
3. If we allow the increase, do we need to amend our plan?
Yes. The plan would need to be amended by the last day of the plan year. We expect FSA administrators to reach out soon to allow you the opportunity to make this change and facilitate any required plan amendments.
We recognize the complexity of complying with the stimulus bill and the decisions you must make for your organization. Be sure to watch the on-demand webinar here for additional information. And, if you have questions that weren’t answered above, please don’t hesitate to reach out to me or Katy Stowers. We’re happy to help bring clarity and provide guidance on your obligations.