How Does The American Rescue Plan Affect Welfare Benefit Plans?
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President Biden signed the American Rescue Plan Act of 2021 (the Act) on March 11, 2021. The Act provides COBRA premium subsidies, increases the tax-exclusion amount for employer-sponsored dependent care assistance programs and expands who may be eligible to receive premium tax credits for marketplace coverage. This alert explains how these provisions may impact your welfare benefit plans. Please contact your Dykema benefits attorney to explore the new provisions in greater depth.
The Act includes free COBRA coverage for certain individuals for a short duration. Employers generally pay for the COBRA subsidies but are able to offset the cost as a credit against their Medicare payroll taxes.
Employers subject to Federal or State COBRA laws must take immediate action to comply with these new COBRA provisions, including:
Identifying who is eligible for the COBRA premium subsidy
Any individual who is eligible for COBRA by reason of an involuntary termination of employment or reduction in hours of service is eligible for the premium subsidy. There are no income restrictions regarding subsidy eligibility, and the involuntary employment termination or reduced hours requirements do not need to be COVID-related. Further, current or former employees, spouses and their dependents may be eligible even if they previously declined or dropped COBRA coverage. The Act refers to these eligible individuals as assistance eligible individuals (“AEIs”) who include:
AEIs, however, do not include qualified beneficiaries who are eligible for COBRA due to qualifying events other than involuntary terminations or reduction in hours (such as voluntary terminations of employment, death of the employee, divorce from the employee, a child attaining age 26). Individuals experiencing any COBRA qualifying events after September 30, 2021, also will not be considered AEIs (unless future legislation extends the COBRA premium subsidy).
Duration of the subsidy period
The subsidy period begins on April 1, 2021, and generally ends for months of coverage beginning after the earliest of:
Types of group health coverage
While further guidance is expected, the COBRA subsidy appears to be available to group medical, dental and vision plans, whether self-funded or fully-insured, that are subject to Federal COBRA law or subject to a State program that provides comparable continuation coverage. However, the subsidy is not available for coverage under health flexible spending account plans.
Optional Change in Annual Elections
An employer, at its option and with the consent of the medical/Rx insurance carrier, may allow AEIs to elect an alternative medical/Rx option if each of the following conditions is met:
This special election change does not apply to dental or vision coverage, qualified small employer health reimbursement arrangements or flexible spending accounts.
Amount of the COBRA subsidy
The COBRA subsidy is 100% of the applicable COBRA premium, including any administrative fees. This means that AEIs will pay nothing for their COBRA coverage during the subsidy period.
Responsible payer for the COBRA premiums during the subsidy period
Generally, the employer that sponsors the group health plan will pay the COBRA premiums during the subsidy period, but it will recoup that cost by Medicare payroll tax credits.
If the group health plan, however, is a multiemployer union welfare plan, the plan itself will pay the COBRA premiums. Also, if the group health plan is fully-insured andnotsubject to Federal COBRA law, such as a fully-insured small-employer group health plan subject only to State COBRA law, the insurance carrier will pay the subsidy.
The IRS is expected to issue additional guidance on how to claim tax credits to offset the cost of the COBRA subsidy during the subsidy period.
Employers supplemental notice obligations
There are three new COBRA notice requirements affecting plan administrators/employers under the Act:
Content of the supplemental notices
Each of the supplemental notices above must include:
The Department of Labor is expected to issue model notices in the next few weeks.
With respect to an AEI who is eligible for a second chance to elect COBRA coverage, he or she must make the election for such COBRA coverage within 60 days of receipt of the supplemental COBRA election notice. Similarly, an AEI has 90 days after the date of notice of the availability to change to a lower cost option to enroll in that different coverage option.
If an AEI becomes eligible for other group health plan coverage or Medicare, the subsidy is no longer available. Mere eligibility (versus enrollment) is all that is required. An AEI must notify the group health plan when the AEI is no longer eligible for the subsidy due to other available coverage. Unless an AEI’s failure to notify the group health plan of other coverage is due to reasonable cause and not willful neglect, an AEI will be subject to a penalty of $250.
Interplay with COBRA tolled deadlines
The prior COVID-extended deadline guidance creates administrative challenges for employers in administering the COBRA subsidy under the Act. The COBRA election and premium payment deadlines are extended until the earlier of (i) one year from the original effective date of COBRA coverage or (ii) the end of the Outbreak Period. The Outbreak Period ends 60 days after the end of the national emergency concerning COVID-19. On February 24, 2021, President Biden extended the national emergency beyond March 1, 2021. As a result, the COBRA election and payment deadlines continue to be extended. Some questions regarding the interplay between the Act and COVID-extensions are:
DEPENDENT CARE FLEXIBLE SPENDING ACCOUNTS
For the 2021 tax year only, an employer may increase the annual contribution limit for dependent care FSAs to $10,500 (up from $5,000) for single taxpayers and $5,250 (up from $2,500) for married individuals filing separately. An employer wishing to allow for this optional increased limit may need to amend its benefit plans, and the amendment can be retroactive to the first day of the plan year. For cafeteria and dependent care flexible spending accounts, the amendment must be made by the last day of the 2021 plan year and should allow for a special election period (which is permitted under CAA and IRS guidance without a mid-year qualifying change in status event), permitting participants to increase their pre-tax salary contributions up to the increased limit. Note that this type of change may make it more difficult for the dependent care FSA to satisfy annual nondiscrimination testing when highly compensated employees (HCEs) increase their contributions. If the employer allows for this increased limit, it should perform a preliminary 55% average benefit tests to determine if contributions by HCEs need to be further limited.
EXPANDED PREMIUM TAX CREDIT FOR INDIVIDUALS
The Act enacts temporary changes to the ACA’s Advanced Premium Tax Credit methodology for marketplace coverage resulting in a greater number of people who are now being eligible for the premium tax credit. Specifically:
Although these changes do not directly impose requirements on employer-sponsored group health plans, the changes potentially increase the risk of an assessment under the ACA’s Employer Shared Responsibility Payment (“ESRP”) requirements for applicable large employers who currently are not offering minimum value and affordable group medical/Rx coverage to their full-time employees. If your group coverage does not meet these ACA standards, you should contact your benefits counsel or consultant to analyze your increased risk of ESRP assessments and ways to minimize that risk.
If you have any questions about the group health plan provisions in the American Rescue Plan Act of 2021, please contact Amy Christen ([email protected] or 248-203-0760), Kenneth Sachs ([email protected] or 248-203-0882), Margaret Hunter ([email protected] or313-568-6788),or your local Dykema relationship attorney.
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