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On March 11, 2021, President Biden signed the $1.9 trillion American Rescue Plan (ARP) Act into law – a sixth round of long-awaited support and relief from Congress to help Americans deal with the grappling effects of the COVID-19 pandemic. The passage of this law brings significant changes to the health insurance industry, which are arguably some of the biggest we’ve seen since the introduction of the Affordable Care Act (ACA) in 2010.
 
Because of the buzz created by the law, many are asking about the changes to the employee-benefits and health insurance industries – especially changes to COBRA law.
 
Laws require regulations, which tell us how the letter (words) of the law will be applied and enforced in real-life situations. Parts of ARP seem to have some troubling spots, which may conflict with other existing principles and regulations in the industry – particularly in the COBRA space. Regulations and model notices will come from enforcing agencies such as the Internal Revenue Service (IRS) and Department of Labor (DOL) over the next several weeks, which will provide clarity to the law itself – including the troubling areas.
 
Regulators are working to write the regulations for the new law now, which will provide a deep level of clarity to the many questions about ARP’s changes. Until then, we can only take a preliminary view of the law based on the letter of the law itself. Stay tuned to the Word & Brown Newsroom for further updates on ARP and its changes as they become available.
 
Note that these provisions can, and may, change as regulations follow and further clarity is given. While this article is extensive, it is not intended to be comprehensive of the entire law or other provisions linked closely to it.
 
ARP’s significant COBRA change, 4/1/21 – 9/30/21
Arguably ARP’s biggest change to the employee-benefits industry is in COBRA law, which allows a person who’s lost eligibility for a group health plan the opportunity to continue benefits under that group health plan for a certain duration of time (18-36 months depending on the situation). Federal COBRA law generally applies to employers with 20+ FTEs, based on 50%+ of the typical working days of the preceding calendar year as of 1/1 annually. For more information on this count, refer to Word & Brown’s exclusive Employee Count Reference for California employers and Nevada employers.
 
While smaller employers of <20 are excepted from federal COBRA, several states (including California, but not Nevada) have “mini COBRA” programs that apply to employers in this smaller segment. California’s mini COBRA law is called Cal-COBRA, which resembles federal COBRA law with several exceptions related to administration, eligibility timeframes, and benefits.
 
When a person continues a health benefit through COBRA, that person is generally responsible for full payment of the entire gross premium – that is, what the employee contributed and what the former employer contributed for the premium – in addition to a 2-10% admin fee (with exceptions, that can raise the fee as high as 50%). COBRA is often viewed as an impossibly expensive solution to many, because they are surprised to learn the true cost of their premium once the employer’s generous contribution is no longer available. This has been problematic to many during the pandemic, whose bank accounts have been horribly impacted.
 
The new ARP law includes 100% federally subsidized federal COBRA premiums for “Assistance Eligible Individuals” (AEIs) for a six month window, from 4/1/2021 – 9/30/2021. AEIs include any person who has lost coverage due to either an involuntary termination of employment or a reduction of hours resulting in the loss of coverage eligibility. A person who voluntarily resigns, or is terminated for gross misconduct, generally does not qualify as an AEI. An AEI otherwise loses eligibility for the subsidy (and thus the AEI status) if offered coverage for another Group Health Plan during the six-month subsidy period, or when becoming eligible for Medicare (generally at age 65).
 
To subsidize the COBRA premiums, employers with fully insured plans must front payment for COBRA premiums for all AEIs during the 4/1 – 9/30 window, which will be reimbursed later via payroll tax credits by the IRS, applied against employers’ quarterly taxes. If the tax credit payment exceeds the tax amount due, then employers can submit IRS Form 941 for additional funding from the IRS.
 
As previously mentioned, further regulations will follow on how this will be implemented – as there are many outstanding questions about this from the industry. The IRS will likely develop a form to request advance funds from the IRS to pay for AEIs’ COBRA premiums as needed – though nothing has been announced yet. AEIs are widely expected to take advantage of these subsidized COBRA premiums as they are available, and brokers should prepare employer clients for this as early as possible – keeping in mind that further regulation is required before much further guidance can currently be given other than these preliminary updates.
 
Under normal circumstances, when a person elects COBRA, there can be no breaks in coverage; continued coverage must begin the day after the coverage was lost. Normally, if COBRA is dropped (including due to non-payment), COBRA is permanently terminated. The COVID-19 pandemic, however, brought many unique challenges to Americans and the economy. Many people who desired to continue their coverage were unable to do so because of the cost. Thus, many people declined COBRA when initially eligible, or dropped it midyear while maneuvering the challenges of the pandemic.
 
What’s unique (and head scratching to many in the industry) about ARP’s new COBRA changes is a change to this longstanding “no breaks in coverage” rule within COBRA. Because of the new subsidy, any person who became eligible for COBRA before or during the six-month subsidy period, who is or would be within the typical 18-month COBRA period across the subsidy window, including those who did not initially elect COBRA and those whose COBRA coverage lapsed, is eligible to elect COBRA now to take advantage of the subsidy. A caveat is that those persons must be (or would have been) considered AEIs. And, of course, newly eligible COBRA AEIs can take advantage of the subsidy for any time during the subsidy window, as long as the person is a qualified AEI during the timeframe.
 
COBRA’s subsidy is not retroactive, can only be used on a go-forward basis, and is only available during the six-month subsidy period. However, any person (qualifying as an AEI) who did not initially elect COBRA or who let COBRA coverage lapse, can elect COBRA now on a prospective basis – meaning COBRA for many will go in effect 4/1/21, even after long breaks in coverage.
 
Because of the 18-month window provision, this COBRA subsidy could be available to any AEI person with a COBRA qualifying event as far back as November 2019. How carriers will implement this remains to be seen. Like the rest of the country, all of us – including carriers – are looking to regulators to clarify how these changes will work so they can be implemented. It’s important to note that an AEI would also lose eligibly for the subsidy if he or she reaches the end of his or her 18-month COBRA period during the six-month subsidy period.
 
Employers must notify AEIs in any of these categories about the ability to enroll for coverage, as applicable, during the subsidy window. AEIs will have 60 days to elect COBRA after they receive the required notice from the employer. Because this date goes back to late 2019, employers should begin thinking about tracking down former COBRA-eligible persons to prepare for this notice. As of this article’s publication date, model notices for employers to notify AEIs and to comply with this compliance requirement are not yet written or available. Again, model notices and further guidance will follow from forthcoming highly anticipated regulations.
 
ARP also allows employers to implement an optional plan-downgrade option, which would allow AEIs to reduce coverage to less-expensive plans when eligible for COBRA. This is in contrast to COBRA’s other longstanding provision that generally only allows a person to continue the same coverage he or she had the day before experiencing a Qualifying Event (loss of eligibility for the group health plan), except for eligible plan changes at Open Enrollment (and several other exceptions).
 
Employers have a plethora of new notices to send as a result of these changes, as required by ARP. The law gives the IRS and DOL a deadline of 4/10/21 to provide all model notices, except the final notice explaining the expiration of the subsidy that is due by 4/25/21. Notices must be sent to inform AEIs of the extended election period, including those who previously experienced a qualifying event but are still in their maximum 18-month coverage period. Per ARP law, this notice must be distributed by 5/31/2021. Election notices for AEIs eligible for COBRA during the subsidy period must also be revised to reflect these new changes. Lastly, a notice explaining the expiration of the subsidy must be provided to AEIs (unless AEI status is lost due to an offer of alternate group coverage or Medicare coverage) no earlier than 45 days, but no later than 15 days, of the subsidy’s expiration date.
 
Many California employers are wondering if Cal-COBRA falls under the provisions of federal AEI law. At this point, it is unclear. We will wait for further regulation to clarify in the forthcoming weeks.
Because these COBRA changes are so massive, the ARP requires Departments of Health and Human Services (HHS), Treasury, and Labor (DOL) to provide public education and enrollment assistance, which will help us learn a lot more about these changes. The departments are targeting education for AEIs, employers, insurers, etc., and will announce plans shortly.
 
Most employers work with COBRA Third Party Administrators (TPAs) for federal COBRA administration; those TPAs are certainly studying this law to help all employers comply with these items. Like carriers and, frankly, all of us, those TPAs are also awaiting forthcoming regulation so these items can be implemented in their systems and business practices.
 
Additional ARP changes in employee benefits
The ARP contains other significant provisions outlined as follows, with further regulations expected.
 
Dependent Care FSA election adjustment: Employers sponsoring Dependent Care FSAs (commonly referred to as “DCAPs”) in 2021 will see a raise to the maximum election amount permitted within the plan. DCAPs have had a longstanding maximum election of $5,000 per household. The maximum has been drastically increased to $10,500 per household under ARP; however, employers must adopt this change at their discretion; it is not mandatory. Employers with 2021 DCAP plans already in existence can retroactively allow employees to increase contributions – though amendments to plan documents most certainly will be required. Currently, this provision lasts for plan years beginning after 12/31/2020 and before 1/1/2022.
 
Employer tax credits and expanded Paycheck Protection Program (PPP): The Small Business Administration (SBA) added an additional $7.5 billion of funding to its popular PPP program, which provides businesses loans that do not need to be repaid so long as they are used to maintain payroll, which includes employee benefits, and certain other expenses.
 
Eligibility for PPP has also been expanded into other sectors, non-profits, and labor organizations. Additionally, SBA is extending an additional $15 billion of funds in its Economic Injury Disaster Loan (EIDL) program, also giving priority funding to small employers with fewer than 10 employees. Lastly, IRS’s Employee Retention Tax Credit has been extended through 12/31/2021. This credit originated in 2020’s CARES Act and allows employers to claim a credit for paying qualified wages to employees, against applicable employment taxes.
 
Paid Leave: 2020’s Families First Coronavirus Response Act (FFCRA), generally applicable to employers with less than 500 employees, provided mandatory paid sick leave and paid emergency family medical leave for persons unable to work or telework for reasons related to COVID-19, also funded by IRS tax credits similar to the new COBRA provisions. While the provisions of this law expired on 12/31/2020, employers were given the option to continue providing FFCRA leave into 2021 at their discretion. ARP extends the period employers can continue to provide FFCRA-like leave through September 30, 2021. ARP also added three new qualifications for leave that employers must adopt, if they’ve elected to continue an extension of FFCRA leave in the first place. New covered reasons for leave related to COVID-19 vaccinations are: employee is obtaining a COVID-19 vaccination; employee is recovering from any illness related to receiving the vaccine; or the employee is waiting for a test result/medical diagnosis for COVID-19 either on his own accord or by request of the employer.
 
Also, as of 4/1/2021, employers may voluntarily offer an additional 10 days (up to 80 hours) of paid sick leave and receive a tax credit for doing so. Lastly, conditions for taking emergency family medical leave under the optional extension of FFCRA-like provisions have changed. Previously, emergency family medical leave only applied to persons who were unable to work or telework because of the need to care for a child whose school of place of care is/was closed due to COVID-19. Under ARP, emergency family medical leave is now available for all conditions of FFCRA. As such, the maximum tax credit for this type of leave increases from a maximum of $10,000 to $12,000.
 
Changes to Premium Tax Credits (PTCs)/Subsidies for Individual Plans purchased on a State Exchange (Covered California, Nevada Health Link, etc.): ARP significantly extends PTCs on the exchange, though only temporarily, through 2022. The new law extends PTCs to higher-income persons who did not previously qualify for coverage in 2021 and 2022. It also increases subsidies to low-income persons during the same timeframe, including providing maximum subsidies for persons receiving unemployment benefits in 2021.
 
Under normal circumstances, a person is not eligible for a PTC on a state exchange if he or she has a Modified Adjusted Gross Income (MAGI) above 400% of the Federal Poverty Level (FPL). This provision is temporarily eliminated under ARP in 2021 and 2022; any person who purchases coverage on an exchange can access PTCs regardless of the income they make, as long as their premiums exceed 8.5% of their MAGI. Again, further regulations with additional information will follow – however, the Centers for Medicare and Medicaid Services (CMS) announced these PTCs will be available beginning 4/1/2021, so further regulations/guidance should come soon. As a reminder, a person is generally not eligible for a PTC on a state exchange if an employer of any size makes him an affordable offer of qualified coverage on a group health plan. Kaiser Family Foundation, a highly-regarded bipartisan resource in the health insurance industry, has released a Health Insurance Marketplace Calculator to help consumers understand what types of credits might be available under the new law through 2022.
 
Extension of Federal Pandemic Unemployment Assistance: The federal government will continue providing $300/week in federal unemployment to eligible persons through September 6, 2021. These funds are generally in addition to funds provided by state unemployment programs. The total number of weeks a person can collect unemployment was increased from 50 weeks to 79 weeks; it is traditionally 26 weeks/year. These unemployment benefits apply to traditionally employed, but not to self-employed – e.g., gig-workers, etc.
 
As mentioned throughout this column, Word & Brown will keep you up-to-date with breaking changes as they happen – especially as forthcoming regulations are released, providing more context to all items provided by March 2021’s ARP law.