COBRA and DCAP Recipients Get Help from $1.9 Trillion American Rescue Plan Act
The American Rescue Plan Act of 2021 (ARPA), the $1.9 trillion COVID-19 relief package, signed into law by President Joe Biden in March, includes significant, temporary subsidies to the Consolidated Omnibus Budget Reconciliation Act (COBRA). It also includes a temporary increase in the maximum amount which can be excluded from income under dependent care assistance programs (DCAPs).
These changes mean additional responsibilities for employers in 2021.
Employers who had 20 or more employees in the previous year must offer qualified employees and their families the opportunity to keep their group health benefits for a limited time. Qualifying circumstances include voluntary or involuntary job loss; reduction in hours; transitioning between jobs; death; divorce; and other life events.
Currently under COBRA, employees who are losing their jobs must pay the entire premium up to 102 percent of the cost to the plan sponsor. The new law features a 100 percent subsidy to pay COBRA premiums for certain Assistance Eligible Individuals (AEI). The federal government will use employer payroll tax credits to pay the subsidies. The premium subsidies began April 1, 2021 and will end on Sept. 30, 2021. All group health plans subject to COBRA, other than health flexible spending accounts (i.e., medical, dental, and vision), must provide the subsidy.
Employees who did not reduce their hours or leave their job voluntarily are eligible for the subsidy, while employees who voluntarily terminated their employment are not.
There is a time limit on the subsidy. Employees can get the subsidy for up to six months. Eligibility ends when one of these conditions is met:
- When the former employee’s maximum period of COBRA coverage ends.
- On Sept. 30, 2021 — the last day of the program.
- If the former employee becomes eligible for coverage under another group health plan or Medicare. COBRA recipients must notify their former employer if they become eligible for other coverage or pay a penalty ($250 or 110% of the subsidy amount, whichever is more).
Employers should be prepared for the extra administrative work involved with subsidized COBRA premiums, which should be done in coordination with third-party administrators or COBRA administrators. Be sure to:
- Determine who may be eligible for the subsidy. This would include individuals who were COBRA eligible for the last 18 months. For instance, someone whose employment was terminated or whose hours were reduced in November 2019 would qualify for the subsidy since their 18-month eligibility would run through April 2021.
- Provide a revised COBRA notice to anyone who may be eligible for the subsidy. This will require employers to amend their current COBRA notice and election forms. The Department of Labor can provide a model notice to help ensure notices are issued correctly.
- Make sure COBRA premiums are not collected from COBRA recipients during the subsidy period.
Employers also are responsible for sending a notice between 45 and 15 days before the date an individual’s subsidy will expire. No notice needs to be sent if the subsidy is expiring because the individual has become eligible for coverage under another group health plan or Medicare.
Employers may offer AEIs a different coverage option — provided it is also offered to active employees and doesn’t cost more.
Although employers or insurers will pay 100% of the COBRA premium during the subsidy period, the federal government will provide reimbursement if they claim a corresponding credit against their Medicare payroll tax liability.
A Dependent Care Assistance Program (DCAP) allows employees to get a tax break when they pay certain care expenses on behalf of qualifying dependents — children, a disabled spouse, or legally dependent parents.
For 2021 only, ARPA increases the maximum DCAP benefits that can be excluded from income from $5,000 to $10,500 ($2,500 to $5,250 for married people filing separately). Employers may retroactively amend their DCAP plan no later than the last day of the plan year in which the amendment is effective, provided the plan follows its amended terms from the beginning of its effective date.
For more information about the American Rescue Plan, visit www.congress.gov/117/bills/hr1319/BILLS-117hr1319enr.pdf.
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