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COBRA Subsidies Included in American Rescue Plan

Mar 16, 2021 Decorative image

The American Rescue Plan Act of 2021 (ARPA) was signed by President Biden on March 11, 2021. Among changes affecting employers, this COVID-19 relief package includes COBRA subsidies for eligible individuals as well as a temporary increase to the dependent care flexible spending account (FSA) limit.

COBRA Subsidies

The Consolidated Omnibus Budget Reconciliation Act of 1986 (COBRA) allows employees who would lose employer-sponsored health insurance because of job loss (or a reduction in working hours) to continue that insurance for 18 months. However, the employer can require the employee electing COBRA coverage to pay the entire cost of the premium.

The ARPA provides a 100% subsidy of COBRA premiums from April 1, 2021, through Sept. 30, 2021, for employees and their family members who lost health insurance due to the involuntary termination (or reduction in hours) of their employment. These individuals would be allowed to elect subsidized COBRA even if they had earlier declined the COBRA option, or had enrolled in COBRA and then dropped it. The subsidy would not apply to employees who voluntarily terminated their employment or who qualify for another group health plan.

The subsidy is funded by the federal government through a refundable payroll tax credit. The ARPA contains new employee notice requirements for plan administrators; the U.S. Department of Labor will issue model notices for this purpose. Employees may elect subsidized COBRA any time from April 1, 2021, through 60 days after receiving notice of the benefit.

Dependent Care FSA Limit

For taxable years beginning after December 31, 2020, and before January 1, 2022, the ARPA increases the annual contribution limit for a dependent care FSA from $5,000 to $10,500 (and from $2,500 to $5,250 for married individuals filing taxes separately).

Employers with dependent care FSAs can retroactively amend their plans to incorporate this increase, if:

  • The amendment is adopted by the last day of the plan year in which it is effective; and
  • The plan operates consistently with the terms of the amendment until it is adopted.

More Information

Want to learn more about these changes and other recent employee benefits compliance updates? Attend our March 25, 2021, webinar as we break everything down into bite-sized pieces. Topics include:

  • COBRA subsidies
  • Even more Section 125 flexibility
  • Outbreak Period guidance and application
  • COVID-19 testing and vaccine coverage clarifications

The above information does not constitute advice. Always contact your employee benefits broker or trusted adviser for insurance-related questions.