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Health and benefit implications of ARPA

Benefits Administration and Outsourcing|Health and Benefits|Total Rewards
COVID 19 Coronavirus

By Ann Marie Breheny , Anu Gogna and Benjamin Lupin | March 24, 2021

ARPA provides COBRA subsidies, increases the dependent care FSA maximum contribution limit and expands ACA public marketplace subsidy eligibility.

On March 11, 2021, President Biden signed into law the American Rescue Plan Act (ARPA). The ARPA includes important changes for employer-sponsored group health plans and dependent care flexible spending accounts (FSAs), in addition to important pension funding changes, an expansion of the $1 million compensation deduction limit, economic stimulus payments, unemployment changes, and other individual and business-related relief in response to the COVID-19 pandemic. Changes affecting group health plans and health FSAs include: (1) 100% COBRA premium subsidies in certain situations, (2) increases to the 2021 maximum contribution limit to dependent care FSAs, and (3) a temporary expansion of the eligibility requirements for subsidies on the Affordable Care Act (ACA) public marketplace.

Temporary COBRA subsidies (April 1, 2021 – September 30, 2021)

  • Eligibility for COBRA subsidy. The ARPA provides a temporary subsidy of 100% of COBRA premiums for those who are eligible for COBRA due to an involuntary termination of employment or a reduction in hours (referred to as “assistance eligible individuals”).1 Individuals who are eligible for COBRA because of voluntary termination, retirement or death would not qualify as assistance eligible individuals.
  • Availability of COBRA subsidies. The COBRA subsidy will be available beginning April 1, 2021, and is scheduled to end no later than September 30, 2021. The subsidy will end before September 30, 2021, if the individual’s maximum period of COBRA coverage ends prior to that date. The subsidy will also end early if the individual becomes eligible for coverage under another group health plan (other than excepted benefits, a health FSA or a qualified small business health reimbursement account) or Medicare. Assistance eligible individuals must notify their group health plan sponsor if they become eligible for such coverage or face a penalty.
  • Enrollment period. An assistance eligible individual who has not elected COBRA coverage by April 1, 2021, or who elected but then discontinued COBRA coverage, may elect COBRA coverage during an enrollment period starting April 1, 2021, and ending 60 days after the date on which the ARPA-required COBRA notification is delivered. Coverage would be retroactive to April 1, 2021.
  • Employer notice(s). The ARPA requires employers to provide additional notices with respect to COBRA subsidies, including the following:
    • General notice. Employers must include information in the COBRA election notice regarding the availability of the premium subsidy and (if applicable) the option to enroll in different coverage to all assistance eligible individuals.
    • Notice of extended election period. Employers must notify assistance eligible individuals of the new 60-day opportunity to elect COBRA prospectively for the subsidy period. The ARPA directs the Department of Labor (DOL) to issue model notices within 30 days.
    • Notice of expiration of subsidy. The ARPA also requires notice when subsidies will expire. The notice must be sent no more than 45 days and no less than 15 days before expiration. The ARPA directs the DOL to issue a model notice within 45 days.
  • Other discretionary changes. Under the ARPA, employers may provide assistance eligible individuals up to 90 days (following COBRA notice receipt) to elect to enroll in a different group health plan offered by the employer. The premium for the alternative coverage cannot be higher than the premium for the plan in which the employee had been enrolled.
  • Assistance eligible individuals in their “Outbreak Period.” The DOL and IRS previously suspended the time period for an individual to elect COBRA until 60 days after the end of the National Emergency, or if earlier, one year after the individual became eligible for the relief (the Outbreak Period).2 It is unclear how the Outbreak Period relief will be coordinated with the new enrollment and notice rules in the ARPA, and whether a single notice could be used to satisfy all COBRA-related notice obligations.
  • Employer recoupment of COBRA premium subsidy. The employer (for self-insured plans) or the carrier (for fully insured plans) is obligated to provide COBRA coverage and pay or incur the COBRA premium cost. Employers may recover the cost of the coverage from the federal government by claiming a credit against their quarterly Medicare payroll tax payment. The credit can be advanced and is refundable, so plan sponsors and carriers may claim a refund if the subsidies paid exceed the taxes due.

Employer implications

Employers, plan sponsors and health insurance carriers must act quickly to respond to the COBRA subsidy provisions in the ARPA. Some key actions include:

  • Employers and their third-party administrators (TPAs) must identify assistance eligible individuals.
  • Employers must revise their general election notice and be prepared to send notices about the extended election period and the expiration of the subsidy period.
  • Plan sponsors should prepare for the COBRA enrollment or reenrollment of assistance eligible individuals who are not currently enrolled in COBRA.
  • Sponsors of group health plans should consider whether to permit individuals to enroll in a different — but not more expensive — plan option than the one in which they were enrolled when coverage was lost.

Dependent care FSA maximum contribution limit (2021)

The ARPA temporarily increases the maximum amount of dependent care FSA benefits that can be excluded from income from $5,000 to $10,500 (from $2,500 to $5,250 for taxpayers who are married filing separately) for the 2021 tax year. The change to temporarily increase the maximum allowed contribution to $10,500 for 2021 is not mandatory, allowing employers to determine whether to permit the higher limits. It would appear that any discretionary carryover allowed under the Consolidated Appropriations Act for dependent care FSAs would not be included in the maximum dollar limit for 2021. Cafeteria plans may be amended retroactively for the change so long as the amendment is adopted by the last day of the plan year in which the amendment is effective (e.g., December 31, 2021, for calendar-year plans) and the plan is operated in accordance with the amendment’s terms beginning on its effective date.

Employer implications

  • Plan sponsors should determine whether to adopt the change.
  • Plan sponsors should determine whether plan amendments are needed to adopt the change. The need for plan amendments will depend on the existing dependent care FSA plan language.
  • Employers choosing to adopt this change will also want to hold a special enrollment in 2021 to allow employees to change elections. Separate, recently issued IRS guidance already permits prospective election changes.3

Eligibility for ACA public marketplace subsidies (2021 and 2022)

The eligibility requirements for premium tax credits on the ACA public marketplace are temporarily expanded for the 2021 and 2022 tax years. Prior to this expansion, subsidies have been limited to taxpayers with household income between 100% and 400% of the federal poverty line who purchase insurance through the public marketplace. The ARPA eliminates the upper income limit for eligibility and increases the maximum premium tax credit by reducing the percentage of household income that individuals in all income bands must contribute toward the cost of premiums for public marketplace coverage. The law also makes special enhancements to the credit for individuals receiving unemployment compensation in 2021 and provides temporary relief from the reconciliation of any excess advanced premium tax credits.

Employer implications

  • Since the ARPA does not modify the affordability requirements under the ACA employer mandate, these premium tax credit changes do not affect an applicable large employer’s affordability calculations for 2021 or 2022.
  • If the coverage an applicable large employer has offered to its ACA full-time employees is unaffordable, however, this change could result in higher employer mandate penalty exposure because more full-time employees may receive ACA premium tax credits under the expanded eligibility provisions, thus triggering additional penalties.

Going forward

Employer plan sponsors should review the practical implications of these rules, and the steps needed to implement and administer these changes, with their carriers/TPAs. In addition, plan sponsors should watch for additional implementation guidance from the IRS, which could affect how these changes are implemented.


1 Assistance eligible individuals are employees subject to termination/reduction in hours with a loss of coverage in the prior 18 months — since November 2019 — and those subject to termination/reduction in hours with loss of coverage between April 1, 2021, and September 30, 2021.

2 See “DOL guidance on end of COVID-19 ‘Outbreak Period’,” Insider, March 2021

3 See “IRS guidance on FSA flexibility under CAA,” Insider, March 2021

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Insider March 2021 PDF .3 MB

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