New COBRA and COVID-Related Leave Provisions of the American Rescue Plan Act of 2021
The American Rescue Plan Act of 2021 (or “ARPA”) created both new obligations and new options for employers, which provide a health insurance safety net for employees who are laid off or terminated and allow employers to receive tax credits for voluntarily allowing COVID-related leaves between April and September 2021. The following is a summary of the new COBRA and COVID-related leave rules. Our business and employment lawyers are available to answer questions about how these provisions may affect you and your business and we hope you’ll reach out to address your specific questions.
Employer-Paid, Federally Subsidized COBRA Premium Payments
Under the new law, between April 1 and September 30, 2021, employers must pay 100% of an employee’s cost of continued health insurance coverage under COBRA for up to six months, if the employee loses coverage under the employer’s health insurance plan because of a reduction in hours or because of an involuntary termination, as long as the termination was not for “gross misconduct.” The federal government provides a dollar-for-dollar subsidy of these employer-fronted payments through quarterly payroll tax rebates (the same approach used to subsidize COVID-related "FFCRA" leaves in 2020).
In addition to the new requirement that employers front up to six months of COBRA expense, the ARPA also adds new requirements regarding COBRA notices. Employees who were terminated before April 1, 2021, but who are still within the 18-month COBRA period following their termination, may have to receive notice of the new benefit, and COBRA notices provided between April 1 and September 30, 2021, must advise employees of ARPA’s premium coverage. The new notice obligations are in addition to the extension of the COBRA election period that was implemented last year, and we urge our employer clients to contact us or your third-party administrator to ensure you are in compliance with all pandemic-related COBRA notice changes.
The following are the most significant features of the new ARPA COBRA requirements:
- Employers are not required to front these COBRA payments for employees who voluntarily resign.
- Employers must provide the subsidy to former employees who elected coverage and were already receiving COBRA benefits as of April 1, 2021.
- Employers should work with their human resources staff and third-party administrators to supplement COBRA notice forms to describe the new ARPA subsidy. COBRA notices provided to employees who become eligible for COBRA continuation coverage between April 1 and September 30, 2021 must include notification of this subsidy.
- Eligible employees/former employees who did not elect COBRA at the time they became eligible, or who let their COBRA benefits lapse, will have a special enrollment period allowing them to elect coverage. Employers must inform affected individuals of this new enrollment opportunity no later than May 30, and must let those individuals elect coverage for a 60-day period after delivery of the COBRA notification. The U.S. Department of Labor is developing model notice forms to facilitate this part of the ARPA. We urge employers to begin work now to identify employees who should receive this notice, so you are ready to provide notices as soon as model forms become available.
- The COBRA subsidy does not suspend the employee’s obligation to timely elect COBRA coverage, nor does it extend the total COBRA coverage period, which is generally 18 months. An employee whose COBRA period ended before April 1, 2021, is not eligible for the subsidy.
- The number of months of available subsidy will depend on the employee’s date of termination, the date the employee’s COBRA coverage period ends, and the statute’s sunset date of September 30, 2021. So, for example, an employee terminated early last year whose COBRA period began on March 1, 2020, would cease to be eligible for COBRA coverage on August 31, 2021. That employee would be entitled to employer-fronted/federally subsidized COBRA premium payments for the period from April 1, 2021 to August 31, 2021 (because the ARPA does not extend the total 18-month COBRA period). Likewise, an employee who first becomes eligible for COBRA coverage on May 1, 2021, will only receive the subsidy from May 1 to September 30, 2021, the date the subsidy sunsets under the new statute.
- The subsidy applies to both insured and self-insured plans, and to self-funded and insured plans that are not subject to the federal COBRA law but are subject to continuation under applicable state law.
We anticipate that the Department of Labor will soon be issuing model notice forms, regulations and other guidance about this program, including how this ARPA subsidy will coordinate with our employer clients’ existing separation agreements, severance programs and policies and any group layoff or exit incentive programs.
Employer-Elected Extension of Subsidized FFCRA Leaves
The Families First Coronavirus Response Act of 2020 (or “FFCRA”) required employers to provide COVID-related short- and long-term leaves. (Please see our alert from March 2020 describing FFCRA leaves for a general description of the types of leaves that were available under that program which expired on December 31, 2020, as well as our April 2020 alert describing how employers can claim payroll tax credits for paid FFCRA leaves.)
The 2021 ARPA allows employers with fewer than 500 employees to voluntarily make FFCRA leaves available between April 1 and September 30, 2020, and to receive tax credits for those paid leaves as they did under the original act. Importantly, FFCRA leave has not been mandatory since January 1, 2021, and the decision to offer continued FFCRA benefits to employees is entirely within an employer’s discretion.
The ARPA includes several modifications of the original COVID leave programs, including the following:
- The ARPA expands the reasons why employees may take leaves (and therefore expands the types of leaves for which employers may receive a tax credit). Tax credits are available for paid leave taken by employees to receive a COVID-19 vaccine or to recover from “any injury, disability, illness, or condition related to such immunization.” Employers may also receive a credit for leave taken when the employer has requested an employee to be tested for COVID-19 or to consult with a medical provider about a COVID-19 diagnosis.
- The FFCRA required employers to provide ten working days of full or partially paid sick leave for certain COVID-related reasons. Under the new ARPA, employers may recover the tax credit for an additional 10 days of paid sick leave provided between April 1 and September 30, 2021.
- The FFCRA required employers to provide partially paid FMLA leave for employees who were unable to work because their child’s school or day care was closed because of COVID. The ARPA expands this FMLA benefit to allow an employer to recover a tax credit for paid leave (up to 2/3 of the employee’s regular pay, capped at $200 per day) provided for any of the FFCRA qualifying reasons, not just for paid leaves provided to deal with child care concerns.
- The ARPA, unlike the FFCRA, contains new nondiscrimination rules prohibiting employers from offering leave in a manner that favors highly compensated or full-time employees or distinguishes between employees based on tenure.
We have updated our FFCRA leave flow chart to reflect the new ARPA rules for employer recovery of tax credits, and you can find that updated chart at this link: ARPA of 2021 - Voluntary FFCRA Leave Extension Flow Charts
As with the ARPA’s new COBRA benefit, we anticipate that the IRS will issue additional guidance regarding the voluntary FFCRA extension program, and we will update our clients as we receive new information.
Please contact any member of our COVID-19 response team to discuss your questions about the new COBRA rules, voluntary FFCRA leave extension, or other COVID-19 or ARPA related concerns.