Employers’ Guide to the American Rescue Plan Act’s Impact on COBRA and FFCRA
The American Rescue Plan Act of 2021 (ARPA) became law on March 11, 2021, and impacts private employers, their employees, and their benefit plans. ARPA has the following impact on employers relating to the Consolidated Omnibus Budget Reconciliation Act (COBRA) and Families First Coronavirus Response Act (FFCRA).
Consolidated Omnibus Budget Reconciliation Act (COBRA)
ARPA requires employers and their group health plans to offer 100% subsidized COBRA continuation coverage to eligible plan participants (defined as “assistance eligible individuals” or “AEIs”) between April 1, 2021, through September 30, 2021. The United States Department of Labor (USDOL) and the Internal Revenue Service (IRS) will provide guidance and regulations after April 1, 2021.
An AEI is any qualifying plan participant who loses, or has lost, health insurance coverage due to an involuntary termination (other than for gross misconduct) or a reduction in hours worked (note: ARPA does not appear to distinguish between a voluntary or involuntary reduction in hours), and who elects continuation coverage to be effective during the April 1, 2021, and September 30, 2021, timeframe. An AEI will lose eligibility for COBRA subsidized coverage if they become eligible for other group health insurance coverage or Medicare. AEIs are required to notify the plan if they lose eligibility for COBRA subsidized coverage.
Employer-sponsored health insurance plans that are subject to federal COBRA requirements or comparable state continuation programs must offer fully subsidized continuation coverage to AEIs between April 1, 2021, and September 30, 2021. The requirement to provide fully subsidized continuation coverage for AEIs applies to employers who are subject to COBRA, as well as small employers who are not subject to COBRA but are subject to a state law continuation law, like North Carolina’s health insurance continuation law. Alabama does not have a state continuation law, but most states do.
Employers who comply and provide subsidized coverage as required by ARPA will be reimbursed through tax credits against their quarterly payroll taxes for the costs of the subsidized coverage during the six-month subsidy period. If the tax credit exceeds the payroll taxes owed, it will be treated as an overpayment and refunded to the employer. Employers can also seek the advancement of the credit (to be treated as a refund), such as if the costs of subsidized coverage are expected to exceed the quarterly payroll taxes. The IRS will provide further guidance.
Extension of Election Period for AEIs
ARPA lengthens the COBRA election period and allows individuals whose COBRA election period expired prior to April 1, 2021, to elect subsidized COBRA coverage beginning April 1, 2021. This special enrollment opportunity also allows AEIs who previously declined COBRA or elected but then terminated their COBRA coverage (such as due to premium nonpayment), the ability to elect subsidized COBRA coverage beginning April 1, 2021. However, ARPA does not extend the maximum COBRA coverage period (generally 18 months).
Plans must provide three types of notices to AEIs (two of which are one in the same, but the timing and recipients are different).
- General Election Notice: Plans must provide a general election notice to AEIs who first become eligible for subsidized coverage during the six-month subsidy period. This notice must generally notify the AEIs regarding the availability of premium assistance and other specific details about the administration of the subsidized coverage. USDOL and IRS are expected to issue a model notice by April 10, 2021.
- Special Election Notice: Similar to the General Election Notice, but this notice must be provided to those AEIs who previously elected, but discontinued their COBRA coverage prior to April 1, 2021, or who declined COBRA previously, but are still within their COBRA coverage eligibility period. This notice must be provided within 60 days from April 1, 2021, and AEIs will have 60 days from receipt of the Special Election Notice to elect subsidized COBRA coverage. USDOL and IRS are expected to issue a model notice by April 10, 2021.
- Expiration of Subsidy Notice: The General and Special Election notices provide information to AEIs on the front end regarding their rights to elect subsidized COBRA coverage, whereas this Expiration of Subsidy Notice requirement alerts AEIs that the subsidized aspect of their COBRA coverage will expire on a certain date. This notice must be provided at least 15 days before the subsidy expires and no earlier than 45 days before the subsidy expires. USDOL is tasked with issuing a model notice by April 25, 2021.
Families First Coronavirus Response Act (FFCRA)
Tax Credits for Providing FFCRA Paid Sick and Family Leave
ARPA does not renew the requirement that private employers must provide employees with paid or unpaid leaves of absence for reasons related to COVID-19 – as originally mandated by FFCRA almost exactly one year ago. ARPA does extend and expand the availability of payroll tax credits if employers voluntarily provide paid leave consistent with FFCRA.
- Tax credits are available to private employers with fewer than 500 employees who voluntarily provide qualifying paid leave under FFCRA. Local government employers may be eligible in similar circumstances for Social Security and Medicare tax credits.
- Wages that entitle an employer to payroll tax-credits must be paid within a specified period of six (6) months: from April 1, 2021, through September 30, 2021.
- ARPA expands the qualifying reasons for paid leave (both sick leave and emergency family medical leave) under FFCRA; extends the length of paid leave available; and increases the maximum tax credit associated with that paid leave.
- ARPA broadens the COVID-19-related sick-leave reasons for which an employee would qualify for paid sick leave. The three new qualifying reasons for paid leave are: (a) getting tested or awaiting test results or medical diagnosis for COVID-19; (b) getting the vaccine; or (c) recovering from an illness or medical condition associated with getting the vaccine. To qualify for the tax credit, the employer must provide paid leave for one of these qualifying reasons.
- These expanded “sick leave reasons” are now qualifying emergency family medical leave reasons for paid leave under FFCRA.
- ARPA eliminates the requirement that the first 10 days of emergency family medical leave be unpaid.
- There is a new bank of up to 10 days per employee of qualifying paid sick leave that is available for tax credits for 2021, beginning on April 1, 2021. Thus, the amount of the tax credit per employee has increased from $10,000 to $12,000.
- Employers cannot receive a tax credit if they violate FFCRA (anti-retaliation or nondiscrimination provisions).
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Employers should seek advice from experienced attorneys when creating these forms and policies in order to minimize potential liability. If you have questions about what to do with your business or company during the COVID-19 pandemic, call Capell & Howard at 334-241-8000 and ask for one of our employment lawyers: Barbara Wells, Christopher Weller, Brooke Lawson, Carla Gilmore, Blake Brookshire, or Mai Lan Isler. Or, visit our web page at http://www.chlaw.com for contact info and the latest alerts.
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