Posted by: Edward Phillips & Brandon Morrow on May 1, 2021

Journal Issue Date: May-June 2021

Journal Name: Vol. 57 No. 3

The American Rescue Plan Act of 2021 (ARPA), the $1.9 trillion economic stimulus package signed by President Biden on March 11, 2021, includes two major provisions likely to have an impact on employers (and employees). First, employer-sponsored health insurance plans must offer 100% subsidized COBRA continuation coverage for the period April 1, 2021 through Sept.30, 2021 for “assistance eligible individuals.” This is a significant departure from the traditional COBRA framework where the former employee is responsible for premium payments. ARPA offsets the costs associated with the subsidy in the form of tax credits.

Second, while ARPA does not extend the paid leave mandate found in the Families First Coronavirus Relief Act (FFCRA), it does extend the availability of payroll tax credits to those employers who voluntarily provide paid leave for COVID-19-related scenarios. ARPA also adds three new qualifying scenarios for eligible paid leave and opens up the eligibility requirements for 12 weeks of paid family leave.

Employer-Subsidized COBRA Coverage

ARPA provides that “assistance eligible individuals” (AEIs) are eligible for 100% subsidized COBRA continuation coverage from April 1, 2021 through Sept. 30, 2021.

Who qualifies as an AEI? An AEI is any qualifying plan participant who loses, or has lost, health insurance coverage because of an involuntary termination (other than for gross misconduct) or a reduction in hours worked (ARPA does not appear to distinguish between a voluntary or involuntary reduction in hours). AEIs fall into two groups:

  1. Those entitled to COBRA any time after April 1, 2021 and before Sept. 30, 2021, who timely elected COBRA coverage and have been paying COBRA premiums (Group 1).
  2. Those who were entitled to COBRA but either failed to elect coverage or timely elected but then dropped coverage prior to April 1, 2021 (Group 2).

For those in Group 2, 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, so long as the individual otherwise qualifies as an AEI and remains eligible for COBRA coverage during (some or all of) the six-month subsidy period. Importantly, though, ARPA does not extend the maximum COBRA coverage period, which is generally 18 months.

Take, for example, an employee who was involuntarily terminated in November 2020 and chose not to elect COBRA coverage. That employee is now eligible for subsidy coverage beginning on April 1, 2021. The 18-month coverage period (which ARPA does not change) runs from Dec. 1, 2020. However, the subsidy is only available from April 1, 2021 through Sept. 30, 2021.

For an employee who becomes eligible after ARPA’s passage — the timing of the eligibility will determine the amount of the subsidy. An employee terminated in July 2021 would only be eligible for two months of the subsidy (August and September). The eligibility period would continue to run for 18 months through Jan. 31, 2022 (16/18 months would be unsubsidized).

If the 18-month COBRA eligibility window has already passed, then the employee is not eligible for the subsidy. An employee terminated in July 2019 who did not elect COBRA coverage is not eligible for the ARPA subsidy because he or she is now outside the 18-month window.

As with COBRA eligibility in general, 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.

How are AEIs notified of their eligibility? Employers are required to provide notice to AEIs informing them of their eligibility in the COBRA subsidy program. For those employees who become eligible during the six-month subsidy period (Group 1), the normal COBRA timeline rules apply. A new model notice, which was to be available from the Department of Labor and IRS by April 10, 2021, will inform AEIs of their eligibility for the subsidy.

A notice is also required for 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 (Group 2). 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. Employers should now begin identifying those employees who fall within Group 2 so that notices can be timely issued. Like Group 1, a model notice for Group 2 was to be available by April 10, 2021.

In addition to the notices discussed above about electing subsidized COBRA coverage, ARPA also requires employers to issue a notice when the subsidy is expiring. The 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. However, this notice is not required where an AEI becomes ineligible for COBRA coverage due to becoming eligible for group health insurance coverage or Medicare. The Department of Labor was tasked with issuing a model notice by April 25, 2021.

How are subsidy costs offset for employers? The COBRA subsidy costs are reimbursed through tax credits against employers’ 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.

ARPA extends tax credits for FFCRA paid leave

ARPA does not extend the FFCRA’s mandate for paid leave. It does, however, extend the availability for tax credits through Sept. 30, 2021 if such leave is provided consistent with the FFCRA and with ARPA’s new provisions.

New scenarios qualify for leave. In addition to the six qualifying reasons originally listed in the FFCRA, ARPA adds three new scenarios that trigger tax-credit-qualifying paid leave:

  1. getting tested or awaiting test results or medical diagnosis for COVID-19 (provided that the employee was exposed to COVID-19 or the test/diagnosis was requested by the employer);
  2. getting the vaccine; or
  3. recovering from an illness or medical condition associated with getting the vaccine.

Family Leave extended. Under the FFCRA, leave either fell under Emergency Paid Sick Leave (EPSL), which was 10 days, or Emergency Family Medical Leave (EFML), which was 12 weeks. EFML was only available to care for a child whose school or place of care was closed for reasons related to COVID-19. ARPA changes that – EFML (12 weeks of leave) is now available for any of the nine qualifying reasons.

ARPA also strikes the provision of the FFCRA that required the first two weeks (10 days) of EFML taken, to be unpaid. Accordingly, the entire 12 weeks of EFML is paid. The limit on the tax credit for paid family leave wages has also been increased to up to $200 per day, up to $12,000 per employee (previously, $10,000). 

Next steps: Agency Guidance

As is the case any time a comprehensive piece of legislation is passed, we will need some guidance from federal agencies to address some of ARPA’s nuances. New forms and answers to FAQ’s should be available soon. In the meantime, employers should begin preparing for compliance with COBRA subsidy requirements and making a determination whether they will elect to provide paid leave in exchange for tax credits. 

EDWARD G. PHILLIPS is a lawyer with Kramer Rayson LLP in Knoxville, where his primary areas of practice are labor and employment law. He graduated with honors from East Tennessee State University and received his law degree from the University of Tennessee College of Law in 1978 with honors, and as a member of The Order of the Coif. He is a former chair of the Tennessee Bar Association’s Labor and Employment Law Section.

BRANDON L. MORROW is an attorney with Kramer Rayson LLP in Knoxville. He represents businesses, educational institutions and religious institutions in employment and civil rights related matters. He holds a bachelor’s degree from the University of Tennessee and a juris doctorate from the University of Tennessee College of Law.