American Rescue Plan relaxes rules for health and dependent care flexible spending arrangements | FAQ
On March 11, 2021, a $1.9 trillion relief bill commonly referred to as The American Rescue Plan Act of 2021 (ARPA) was signed into law to provide relief in many forms, including COBRA subsidies, a second election period, and an increase in dependent care assistance.
PacificSource Administrators, Inc. has created the following FAQ to address the current interpretation of ARPA. Because information is subject to updates and complexities may apply to your unique situation, clients are advised to seek legal or tax consultation for additional guidance.
COBRA Assistance
From April 1 to September 30, 2021, employees with an involuntary termination or reduction of hours will be eligible to receive a 100% subsidy of health insurance premiums under COBRA. This allows unemployed individuals (and their spouses and dependent children) to continue employer-sponsored coverage after losing employment without having to contribute toward any portion of their premiums through September 2021.
The U.S. Department of Labor provided the model notices on April 7, 2021. PacificSource Administrators will notify eligible members of the plan subsidy by May 31, 2021, in accordance of the ARPA rules.
PacificSource Administrators will be providing a notice of expiration of premium assistance 45 days before the date of expiration. Notice is not required if coverage ends due to exhaustion of COBRA or eligibility for other coverage before the assistance period ends.
If eligible, individuals may have 100% of COBRA premiums paid for a period of up to six months beginning on April 1, 2021. This includes the 2% administrative fee.
A qualified beneficiary is anyone who is COBRA-eligible due to a reduction in hours or involuntary termination of employment (excluding gross misconduct).
Yes, the premium assistance applies to spouse and family coverage.
Premium assistance applies to medical, dental, vision, and employee-assistance programs. It doesn’t apply to healthcare flexible spending accounts.
Premium assistance applies to premiums accrued from April 1, 2021 through September 30, 2021.
The period of eligibility includes assistance-eligible individuals who would still be within their maximum COBRA period regardless of status.
An ineligible individual is an employee who is eligible for other group health coverage, is a Medicare-eligible employee, or has voluntarily terminated their employment.
No, the American Rescue Plan Act (ARPA) does not extend the length of COBRA coverage.
Second Election Period
If an individual did not previously elect COBRA, or elected COBRA and discontinued COBRA coverage prior to April 1, 2021, they will have a new 60-day election period starting on the date that the notice is generated to the individual. These two examples help clarify:
- Example 1: An individual is eligible for the subsidy and is currently pending COBRA election with a last day of coverage (LDOC) date of March 1, 2022. Upon notification of eligibility, this individual is granted a second election to choose coverage effective April 1, 2021.
- Example 2: An individual is eligible for the subsidy and has terminated COBRA coverage with a LDOC of March 1, 2022. Upon notification of eligibility, this individual is granted a second election to choose coverage effective April 1, 2021.
Individuals who experienced involuntary termination and reduction of hours will be sent initial second election notices. For groups that don’t use these terms when submitting qualifying event information, additional details will need to be provided to PacificSource Administrators to determine eligibility.
Upon member election, employers with fully insured plans will be billed by PacificSource Administrators for the full-subsidized premium, including the 2% administrative fee.
Upon member election, employers with self-funded plans will be billed by PacificSource Administrators for the subsidized 2% administrative fee, if applicable.
Employers with fully insured and self-funded plans may be subject to reimbursement of full-subsidized COBRA premiums, including the 2% administrative fee, through payroll tax credits.
PacificSource Administrators will refund the member within 30 days of determined eligibility for premium assistance.
Dependent Care Assistance Increase
On March 11, 2021, the American Rescue Plan Act of 2021 (ARPA) was approved by Congress with provisions that affect employers and participants. The plan maximum for dependent care (DCAP) has temporarily increased from $2,500 to $5,250 for married filing single and $5000 to $10,500 for married filing jointly for the taxable year beginning in 2021. Employers have the option to increase the election amount, but are not required to.
An employer can amend their DCAP plan retroactively to adopt this increased limit as long as it amends the plan by the end of the plan year and operates consistently with the amendment.
For January renewals to the dependent care expenses (DCE) provision, the PacificSource Administrators, Inc. account portal has automated the process to increase the maximum contribution for dependent care. This process to opt in for the group begins Wednesday, May 5. PacificSource Administrators will be responsible for updating the other renewing months.
Yes, per the regulation, plans beginning after December 31, 2020, can be amended. The employee would not be able to increase their contributions taken prior to the implementation of the amendment. Election changes must be prospective for future months.
This rule is only applicable for the tax year beginning in 2021 and would only apply to a portion of the group’s plan year. For example, if your plan year begins July 1, 2021, employees could contribute for the first six months of the plan year at $875 per month (the monthly average of $10,500). After that, their contributions would need to align with the normal IRS limit of $5,000 per year. Employers with non-calendar year DCAP plans adopting this change should make employees aware of this limitation.
Our communication to groups will include that we will follow their current proration rules. As always, the group may amend their plan if they want to make a change.