President Biden signed the $1.9 trillion American Rescue Plan Act (ARPA) into law March 11 providing economic relief to businesses and the unemployed affected by COVID-19. Among the funding initiatives are expanded unemployment benefits, relief for local governments, schools and small businesses, and a COBRA subsidy for those who lost coverage due to a reduction of hours or involuntary termination. The subsidy is also available for state continuation of coverage, which applies to businesses with fewer than 20 employees.
Starting April 1, eligible COBRA participants (including family members entitled to COBRA) will have 100% of their COBRA premiums paid for by their former employer. In turn, affected employers will receive a tax credit against quarterly payroll taxes. If the credit exceeds the amount of payroll taxes due, the credit will be refundable when submitting Form 941. The subsidy ends September 30, 2021, or at the time COBRA coverage is exhausted (generally 18 months). The subsidy applies to medical, dental and vision plans, but does not apply to health flexible spending accounts. The subsidy would also cease for individuals who become eligible under another group health plan or Medicare.
Those who earlier did not enroll in COBRA coverage when eligible or dropped coverage have a second chance to receive the subsidized coverage if they are still within their COBRA/state continuation maximum coverage period. Individuals would have to elect coverage within 60 days of being notified of the subsidy opportunity. Coverage would be provided prospectively rather than revert to the original COBRA event date. Individuals who qualify for the second-chance enrollment must be notified no later than May 31, 2021.
Employers have the option to allow COBRA-eligible participants (following receipt of a COBRA notice) to elect different coverage, so long as the premium for different coverage does not exceed the participant’s premium for the coverage in effect at the time of the qualifying event.
COBRA administrators are required to issue revised notices that include information about the availability of the subsidy, eligibility requirements, expiration dates, and contact information of the plan administrator. The Department of Labor (DOL) is expected to provide a model notice no later than 30 days after the enactment of ARPA. Additionally, a notice must be sent informing COBRA participants when the subsidy expires. The DOL is expected to provide a model notice within 45 days of ARPA’s enactment.
Participants who are not entitled to accept the COBRA subsidy will be subject to a $250 penalty or 110% of the COBRA subsidy received.
Extension of FFCRA credits
The paid emergency sick and family leave provisions within the Families First Coronavirus Response Act (FFCRA) expired December 2020, but for employers wanting to extend the leave, tax credits could be claimed through March 31, 2021. ARPA extends the credits through September 30, 2021.
- The employee is seeking or awaiting the results of a COVID-19 diagnostic test or medical diagnosis, or their employer has requested such a test or diagnosis.
- The employee is obtaining immunization related to COVID-19.
- The employee is recovering from any injury, disability, illness or condition related to such immunization.
Dependent Care Assistance Program (DCAP) increase
ARPA also gives employers the option to increase annual DCAP deductions from $5,000 to $10,500 (or from $2,500 to $5,250 for individuals who are married but file separate tax returns.) Employers who elect this option must amend their plan document.