Implications of the American Rescue Plan Act of 2021 for Employers: COBRA Subsidies & FFCRA Expansion
On March 11th, President Biden signed the American Rescue Plan Act of 2021 (“ARPA”). Employers should take note of two ARPA provisions in particular: (1) Mandatory COBRA premium subsidies and (2) the expansion and voluntary extension of FFCRA leave.
Mandatory COBRA Subsidies
As employers are aware, when an employee loses their employer-provided group health insurance due to certain qualifying events (such as a separation from employment or reduction in hours), the employee is typically eligible to continue their group health insurance coverage under the federal Consolidated Omnibus Budget Reconciliation Act of 1985, commonly referred to as COBRA, or certain state-law equivalents. Following a qualifying event, individuals may elect to receive health insurance under COBRA (“COBRA Continuation Coverage”) for up to 18 months, and may also be entitled to additional periods of coverage under analogous state law. If an individual elects COBRA Continuation Coverage, the individual must generally pay the full cost of the health insurance premiums and a 2% administrative fee.
However, under ARPA, certain individuals will be entitled to COBRA Continuation Coverage at no cost to themselves for any period of coverage between April 1, 2021 and September 30, 2021 (the “COBRA Subsidy”). The individual’s former employer or the insurance company (depending on the type of plan) will be responsible for the full cost of the premiums during any such period.
Individuals are eligible for the COBRA Subsidy if they elect COBRA following their involuntary separation from employment or reduction in hours and are otherwise eligible for COBRA Continuation Coverage. Importantly, unlike typical COBRA Continuation Coverage, an individual is not eligible for the COBRA Subsidy if they voluntarily terminate their employment by, for example, resigning or retiring.
Employers should be aware of how the COBRA Subsidy may impact their template severance and separation agreements. Many employers routinely offer separated employees paid COBRA Continuation Coverage in exchange for the employee signing a general release of claims. However, now that employees will be eligible for free COBRA Continuation Coverage from April 1, 2021 to September 30, 2021, an employer’s offer of COBRA Continuation Coverage for that period is no longer valid consideration for a release of claims unless the employee voluntarily separated from employment. Thus, employers will need to ensure that they are providing sufficient consideration in exchange for the separation agreement, for example, by offering severance pay. Similarly, employers should make clear in their severance and separation agreements that regardless of whether the employee signs the agreement, they may be entitled to the COBRA Subsidy.
Employers should also consult with their tax counsel, ERISA counsel, and insurance providers to ensure they are in compliance with additional COBRA Subsidy requirements, including the following:
Employees who separate from employment typically have 60 days after losing group health insurance coverage to elect COBRA Continuation Coverage. Under ARPA, however, separated employees must be given a Special Election Period to elect COBRA Continuation Coverage and take advantage of the COBRA Subsidy. In other words, former employees who did not timely elect COBRA Continuation Coverage, or those who elected coverage but are no longer enrolled, must be given an opportunity to elect COBRA Continuation Coverage again. The Special Election Period begins on April 1, 2021 and ends 60 days after eligible individuals receive notice of the Special Election Period. Importantly, the Special Election Period applies to all individuals who are still eligible to receive COBRA Continuation Coverage, meaning all individuals who lost group health insurance coverage within the past 18 months, due to an involuntary separation or reduction in hours.
Employers must provide notice of the Special Election Period by May 31, 2021, and then again shortly before the COBRA subsidy expires. Employers are also required to update their standard COBRA notices to reflect the COBRA Subsidy. The Department of Labor is expected to publish model notices. Employers should work with their ERISA counsel and insurance providers to ensure compliance with these new notice requirements.
Individuals eligible for the COBRA Subsidy who have already paid for COBRA Continuation Coverage premiums for any period of coverage between April 1, 2021 and September 30, 2021 may need to be refunded.
The employer or insurance company that pays for the premiums of an individual eligible for the COBRA Subsidy is permitted to claim a tax credit to defray the cost of premiums.
Voluntary FFCRA Expansion
As employers will recall, employers with fewer than 500 employees were required to provide employees with paid Emergency Sick Time and paid Expanded Family and Medical Leave (“Expanded FMLA”) for certain reasons associated with COVID-19 until December 31, 2020 (“FFCRA Leave”). The prior stimulus bill extended FFCRA (and its related tax credits) through March 31, 2021, but made such leave voluntary, rather than mandatory. ARPA continued this trend, extending the tax credits and voluntary nature of the FFCRA leave through September 30, 2021.
In addition, while Expanded FMLA could only be used to care for a child whose place of care or school was closed for COVID-related reasons under the FFCRA, ARPA now grants employees the ability to use Expanded FMLA for any of the reasons an employee is permitted to take Emergency Paid Sick Leave. And while Expanded FMLA was previously unpaid for the first two weeks and partially paid for the remaining 10 weeks, under ARPA all Expanded FMLA is partially paid.
ARPA also expands the reasons employees may take FFCRA Leave (both Emergency Sick and Expanded FMLA) to include when (1) the employee is seeking or awaiting the results of a COVID-19 test or diagnosis because the employee has been exposed to COVID-19 or the employer requested a COVID-19 test or diagnosis; (2) the employee is receiving the COVID-19 vaccine; or (3) the employee is recovering from any injury, disability, illness, or condition related to the COVID-19 vaccine.
Lastly, ARPA resets the clock for employee use of Emergency Paid Sick Leave as of April 1, 2021. This means that even if an employee has previously used Emergency Paid Sick Leave during the COVID-19 pandemic, as of April 1, 2021 they have 10 days of Emergency Paid Sick Leave available for use.
Employers who are interested in claiming a tax credit for voluntarily extending employee eligibility for FFCRA Leave should speak with their tax counsel and revise any leave policies to reflect the expanded reasons employees may take FFCRA Leave.
If you have any questions regarding compliance with ARPA, or require assistance amending your separation agreements or other policies and procedures, please contact Amanda M. Baker at abaker@fglawllc.com, or any attorney at the Firm.
DISCLAIMER: This alert is provided to clients and friends of the firm for informational purposes only and the distribution of this alert is not intended to, and does not, establish an attorney-client relationship. This alert also does not provide or offer legal advice or opinions on any specific factual situations or matters. This communication may be considered Attorney Advertising. Prior results do not guarantee a similar outcome.