ARPA: COBRA & Dependent Care FSA

The American Rescue Plan Act of 2021 includes two important employee benefit provisions related to COBRA and dependent care FSA limits.

COBRA Subsidies

First, the law allows workers who have been involuntarily terminated or experienced a reduction in hours to continue their employer health insurance coverage under COBRA with a 100 percent subsidy. The subsidy is effective April 1, 2021 and continues through September 30, 2021. The federal government will reimburse the employer or insurer (for fully insured plans) for the cost of the subsidy, including COBRA administrative fees.

The bill also provides enhanced Affordable Care Act (ACA) subsidies for similarly impacted workers, giving them a choice between COBRA and individual coverage purchased on an ACA exchange. While premiums will be subsidized no matter which choice an individual makes, the average ACA plan deductible is more than three times higher than the average deductible in an employer plan. Moreover, nearly three quarters of ACA plans have a restrictive provider network. We expect that more people would choose to enroll in COBRA.

The most recent guidance clarifies that the COBRA extension end date is specific to each individual. Any COBRA participant with an election or payment deadline after 03/01/2020 is affected by this notification and the DOL requires that employers communicate the updates to participants. If your organization utilizes Encompass’ COBRA Solution, the first wave of communication on your behalf to the COBRA population is under way and includes those individuals with an original deadline to elect and/or make payment between 1/1/2020 and 5/15/2020.

Following this initial notification mailing, subsequent communication mailings will be sent each month as individual COBRA participant deadlines approach in accordance with these new regulations.

Dependent Care FSA Limit

Employers may temporarily increase the maximum amount that can be contributed to a dependent care flexible spending account from $5,000 to $10,500 for 2021. The $5,000 limit has not increased since it was established in 1986. This relief is particularly welcome at a time when American households are struggling with the impact of the pandemic-induced recession, because the tax savings reduce the cost of childcare.

 If you wish to increase FSA maximum limits, please reach out to your Client Experience Manager to modify your current plan setup. Note, as the regulation only applies to a portion of the plan, the maximum allowed amount would need to be prorated for those not on a 1/1 plan year.