Employers: Here’s Your “Quick Hitter Guide” To The Impact Of The American Rescue Plan Act On COBRA And FFCRA – Coronavirus (COVID-19)
The American Rescue Plan Act of 2021 (ARPA), which came into effect on March 11, 2021, contains a variety of requirements and provisions that affect private employers, their employees, and the benefit plans they offer.
Here is an overview of the changes related to the Consolidated Omnibus Budget Reconciliation Act (COBRA) and Families First Coronavirus Response Act (FFCRA) that are affecting employers.
COBRA Premium Subsidies:
An important mandate from ARPA that affects employers and their group health plans is the requirement to offer 100% subsidized COBRA Continuation Coverage for Eligible Plan Participants (defined as “Eligible Individuals” or “AEI”) between April 1, 2021 and September 30, 2021. There are many nuances (and other technical requirements) associated with this mandate and one requiring employers (and their group health plans) to act quickly. To make matters even more confusing, certain guidelines and regulations from federal agencies such as the U.S. Department of Labor (USDOL) and the Internal Revenue Service (IRS) are required to better understand certain aspects of the COBRA deployment of ARPA only after the guidance is given Expected April 1, 2021. However, we recommend preparing now to avoid any potential pitfalls.
Who is an AEI: An AEI is every eligible plan participant who has his health insurance coverage based on a involuntarily Termination (except in the case of gross misconduct) or reduction in working hours (Notice: ARPA does not seem to distinguish between voluntary and involuntary reduction in hours),
and who chooses to continue the insurance cover for the period from April 1, 2021 and September 30, 2021. As with COBRA eligibility in general, an AEI will lose eligibility for subsidized COBRA coverage if they are eligible for other group health insurance or Medicare. AEIs are required to notify the plan if they lose eligibility for subsidized COBRA coverage.
Who has to offer subsidized insurance coverage?: Employer-funded health insurance plans that are subject to federal COBRA requirements or comparable state continuation programs must continue AIA between April 1, 2021 and September 30, 2021, fully subsidized. Be clear, the obligation applies to employers subject to COBRA to provide fully subsidized continued insurance for AEI,
as well as small employers who are not subject to COBRA but are subject to a state continuation law, like the Continuation of Health Insurance Act in North Carolina.
What About Refunds Or Tax Credits ?:Employers who comply with and offer the subsidized cover required by the ARPA will be reimbursed for the cost of the subsidized cover through tax credits from their quarterly payroll tax during the six-month eligibility period. If the tax credit exceeds the wage tax owed, it will be treated as an overpayment and refunded to the employer. Employers can also ask for the loan to be prepaid (treated as a refund), for example if the cost of subsidized coverage is likely to exceed quarterly payroll taxes. Further guidance from the IRS detailing how this process will be carried out is awaited.
Extension of the election period for AEOI:Significantly, ARPA is extending the COBRA electoral period and allows people whose COBRA electoral period expired before April 1, 2021, from the 1st insurance cover during (part or all) of the six-month funding period. This special registration option also enables AEIs who have previously rejected or chosen COBRA but then ended their COBRA coverage (e.g. due to non-payment of the premium) the possibility of choosing subsidized COBRA coverage from April 1, 2021 extended to include more people who may be eligible for subsidized COBRA coverage, ARPA does not extend the maximum COBRA coverage period (generally 18 months). Therefore, AIA may qualify for subsidized COBRA coverage for part, but not all, of the six month eligibility period. Employers are well advised to start by identifying those individuals who fall into this category so that they can notify the AEI concerned in a timely manner.
Note requirements: Plans are required to provide three types of communications to AEIs (two of which are the same, but the timing and recipients are different).
- General election announcement: Plans are required to submit a general election announcement to AIAs that are eligible for subsidized coverage for the first time during the six-month eligibility period. This notice must provide general information to AEOI on the availability of Premium Aid and other specific details related to the administration of the Subsidized Coverage. Plans can update their existing COBRA election announcements or create a new, separate announcement to accompany the traditional COBRA election announcement. USDOL is expected to issue a sample notice by April 10, 2021 in consultation with the IRS.
- Special election notice: Similar to the general election notification, but this notification must be made available to those AEIs who have previously voted but their COBRA coverage before 1. This notification must be made within 60 days from April 1, 2021, and AEIs have 60 days After receiving the special election notification, time to choose subsidized COBRA coverage. With input from the IRS, USDOL is expected to issue a sample notice by April 10, 2021.
- Expiry of the funding decision: The general and special election notices inform AEIs in the front end of their rights to choose subsidized COBRA coverage, while this expiry notice requirement alerts AEIs that the subsidized aspect of their COBRA coverage is at a certain date expires. This notification must be made at least 15 days before the grant expires and no earlier than 45 days before the grant expires. This notification is not required if an AEI is no longer eligible for COBRA coverage due to group health insurance or Medicare eligibility. USDOL is instructed to issue a sample notification by April 25, 2021.
Tax Credits for Providing FFCRA Paid Sickness and Family Vacation:
ARPA does not Renew the obligation that private employers must grant employees paid or unpaid vacation for reasons related to COVID-19 – as originally mandated by the FFCRA almost exactly a year ago. ARPA
does Expand and expand the availability of wage tax deductions when employers grant voluntary paid vacation in line with FFCRA and now ARPA.
WHO: Tax breaks are available to private employers with fewer than 500 employees who grant voluntary qualifying paid leave under the FFCRA. It also appears that local employers are eligible for Social Security and Medicare tax credits in similar circumstances.
When: Wages that entitle an employer to deduct income tax must be paid within a specified period of six (6) months: from April 1, 2021 to September 30, 2021.
What: In short, ARPA extends the qualifying reasons for paid leave (both sick leave and emergency medical leave) under the FFCRA; extends the length of paid vacation available; and increases the maximum tax credit associated with that paid vacation.
- ARPA expands the grounds of COVID-19 illness by which an employee is entitled to paid sick leave (and for which an employer could apply for appropriate income tax credits). The three new qualifying reasons for paid vacation under the FFCRA include (a) testing or waiting for test results or medical diagnosis for COVID-19 (provided the employee has been exposed to COVID-19 or the test / diagnosis has been requested by the employer) ; (b) receiving the vaccine; or (c) recovery from any illness or medical condition associated with vaccination. To be eligible for the tax credit, the employer must grant paid vacation for one of these qualifying reasons.
- The extended “reasons for sick leave” (above) are now included as qualifying family-related reasons for sick leave for paid leave according to FFCRA.
- ARPA eliminated the condition that the first 10 days of the family medical emergency leave are unpaid.
- It creates a new bank of up to 10 days per employee with eligible paid sick leave, which will be available for tax credits from 2021 April 1, 2021. This has increased the amount of the tax credit per employee from $ 10,000 to $ 12,000.
- Finally, ARPA disqualified Employers from getting a tax credit for violating FFCRA, such as: or Violate non-discrimination rules by FFCRA administering paid vacation benefits in a discriminatory manner in favor of high-paid, full-time or senior employees.
As you may have heard, ARPA legislation is extensive and includes a variety of other provisions that affect employers, benefit plans, and employees. While this article focuses on the subsidized COBRA and FFCRA provisions, there are a number of other provisions relating to defined benefit plans, flexible long-term care spending, executive compensation, and specific industries. Employers are encouraged to reach out to their legal counsel so they can find out about the tax credits and other benefits that can come from ARPA, such as headaches if not treated soon.
The content of this article is intended to provide general guidance on the subject. Expert advice should be sought regarding your specific circumstances.