How Does The American Rescue Plan Affect Welfare Benefit Plans?
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:
- Connecting with their COBRA vendors to discuss administration of these new COBRA requirements.
- Identifying who is eligible for the COBRA subsidy.
- Preparing and furnishing supplemental COBRA notices.
- Establishing payroll mechanisms to timely remit the COBRA premiums to the insurance carriers and claim the payroll tax credits to recoup the cost of the subsidy.
- Understanding the interplay between these new provisions and the previous COVID-relief guidance that extends COBRA election and payment deadlines.
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:
- An AEI who is currently receiving COBRA as of April 1, 2021, and still within the COBRA eligibility period (e.g., within the 18-month maximum COBRA period);
- An AEI who does not have a COBRA election in place as of April 1, 2021, but is still within the COBRA eligibility period (i.e., an AEI who, had they elected COBRA or not had that COBRA coverage discontinued, would have had coverage at any time between April 1, 2021, and September 30, 2021). As described later, a special notice will be provided to these AEIs, and, upon receipt, the AEIs will have 60 days to elect COBRA continuation coverage retroactive to April 1, 2021.
- An AEI who experiences a qualifying event of involuntary termination of employment or reduction of hours beginning on or after April 1, 2021, and ending September 30, 2021.
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:
- September 30, 2021;
- End of the AEI’s maximum COBRA period (e.g., expiration of the 18 months of COBRA coverage); or
- The AEI’s eligibility (regardless of actual enrollment) for coverage under another group health plan or Medicare.
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:
- The change is elected within a 90-day period beginning on the date that the Employer notifies the AEI of the ability to change to a different option;
- The AEI only may change to a medical/Rx option that is less costly than the option in which the AEI is currently enrolled; and
- The alternative option is available to other similarly enrolled active employees.
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:
- AEIs who become entitled to COBRA coverage during the subsidy period must receive additional information about the subsidy. Employers may modify the existing COBRA Qualifying Events Notice or may use a separate document that includes the required information.
- No later thanMay 31, 2021, a notice must be provided to AEIs who have a second chance to elect COBRA coverage.
- A notice must be provided to an AEI stating that his or her COBRA subsidy will expire soon, prominently displaying the expiration date. The notice also must state that the AEI may continue coverage under COBRA or other group health coverage, but without the premium assistance. This notice must be sent at least 15 days, but no more than 45 days, before the subsidy expires. However, if the subsidy is expiring because the AEI is eligible for another group health plan or Medicare coverage, no notice is required.
Content of the supplemental notices
Each of the supplemental notices above must include:
- Any forms necessary to establish eligibility for the subsidy;
- Contact information for the plan administrator and any other person maintaining relevant information in connection with such premium assistance;
- As applicable, the extended election period for an AEI who has a second chance to elect COBRA;
- A description of the obligation of the AEI to notify, and the penalty for failure to notify the plan administrator, regarding eligibility for other group health coverage or Medicare;
- A description, displayed in a prominent manner, of the AEI’s right to a subsidized premium and any conditions on entitlement to the subsidized premium; and
- A description of the option of the AEI to enroll in lower cost coverage if the employer permits such election.
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:
- Will the extended election deadlines apply to the new election periods under the Act? This seems unlikely given that the Act established clear deadlines and did not mention any COVID-extension relief.
- Will the extended premium payment deadlines apply to an employer’s premium payments to insurance carriers? Again, this seems unlikely since insurers are able to suspend claim payments until COBRA premiums are received which would not benefit AEIs.
- With respect to a second chance AEI who enrolls and receives free COBRA coverage beginning April 1, 2021, will the individual also have the ability to retroactively reinstate COBRA coverage for periods prior to April 1, 2021? This seems likely as many AEIs are still within their COVID-extension period (except for those whose original COBRA effective date was more than one year ago).
- If employees are furloughed or laid off and paying their premium share for active coverage under the employer’s group health plans, should the employer or will the employer be required to move these employees to COBRA coverage starting April 1, 2021, to receive free COBRA coverage?
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:
- For two years, the Act repeals the ACA’s 400% federal poverty level (FPL) income cap, beyond which certain individuals previously had been ineligible to receive premium tax credits for purchasing coverage on a market exchange, and instead caps the household spend on monthly health insurance premiums at 8.5% of household income.
- Completely subsidizes health insurance premiums for those ineligible for Medicaid who make up to 150% of the FPL.
- For one year, it counts individuals receiving unemployment compensation as having earned 133% of FPL - making them eligible for 100% subsidized coverage through premium tax credits and cost-sharing reductions.
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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