American Rescue Plan Act - Employer Requirements

New COBRA Subsidy Requirements Under the American Rescue Plan Act

One of the unexpected provisions of the American Rescue Plan Act (ARPA) is a requirement that employers provide fully funded COBRA premiums for six months between April 1 and September 30, 2021. This subsidy requirement applies to all employer-sponsored plans covered by state and/or federal health insurance continuation laws. 

Who is entitled to this benefit? 

  • Employees who lost health insurance coverage any time since November 2019, or those who will lose coverage between April 1 and September 30, 2021, because of involuntary termination (except for gross misconduct) or a reduction in hours.
  • Eligible employees include those currently on COBRA and those who initially declined or who subsequently dropped COBRA coverage.
  • Those who left employment voluntarily are not entitled to the subsidy. 
  • Employees who qualify for subsidized coverage and later become eligible for other coverage, such as through a spouse’s plan or after starting a new job with group health benefits, are no longer eligible for the subsidy.

What is the subsidy and who pays for it?

Employers pay 100% of the COBRA insurance premium for eligible employees and dependents between April 1 and September 30, 2021.  Even though the normal COBRA period is longer, the subsidy only applies for the months of April through September 2021. The law requires employers to refund any COBRA premiums paid by employees during this period.

Employers recoup COBRA payments as a charge against Medicare payroll taxes they would otherwise have to pay quarterly. We expect the IRS to issue guidance on this process soon.

What notices must we provide to our eligible employees?

By May 31, 2021 employers must provide COBRA notices to eligible employees that include information about the subsidy and the special 60-day enrollment period, which begins April 1st and ends 60 days after delivery of the COBRA notice.

The law also requires employers to alert individuals taking the subsidy that the subsidy is close to expiration. This notice must be provided between 15 and 45 days before the subsidy ends. Employers should ensure they can prove all required notices were sent.

What steps should we take to comply?

Information from the Department of Labor:

New Dependent Care Flexible Spending Accounts Limit Increase Under the American Rescue Plan Act

The contribution limit for Dependent Care Flexible Spending Accounts (FSAs) is raised to $10,500 (or $5,250 for single taxpayers or for married individuals filing separately), for the plan year beginning after December 31, 2020 and before January 1, 2022.