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Part 2: Your Questions about COBRA and The Outbreak Period

On Tuesday’s ARPA & The Outbreak Period webinar, our Senior Lead Counsel, Michelle Barki continued answering your questions on dependent care, notices, subsidies, and more. We have outlined the questions and answers from this webinar for you below in case you missed it.

Dependent Care Questions & Answers

If I have a DCA plan that runs on a plan year and renewed 8/1/2020, can they allow their employees to increase their current elections 1/1/2021?

Yes, the DCAP Rule says they can go back to 1/1/21, and when the IRS looks at DCAP, they are looking at it on a calendar year basis and how much money is actually spent on a calendar year plan.

Under Section 129 for 2021, The American Rescue Plan Act of 2021 (ARPA) allows an increase of claimable amount up to $10,500 if filing single and $5,250 if filing jointly. Employers need to consider the following when deciding whether to increase the DCA limit:

  • Nondiscrimination Testing – the 55% Average Benefits Test fails the most often for DCA plans. This test requires that non-highly compensated employees (NHCEs) make up at least 55% of the DCA benefit. So, consider who is participating in your DCAP and who is likely to increase their election to $10,500. You may also want to consider having NDT completed for the DCA plan if you choose to make this change after employees have made their changes to ensure the plan does not favor highly compensated employees (HCEs).
  • Midyear Election Changes – with the changes allowed under the Consolidated Appropriations Act (CAA), employers may have already amended the plan to allow for an extended 12-month grace period or a carryover of unused funds from plan years ending in 2020. Employees should not increase their DCA elections for 2021 to an amount that exceeds the new maximum when combining the unused amounts from the prior plan year. Any amounts reimbursed beyond the new maximum will be included as taxable income when the employee files their taxes, which they report on Form 2441.
  • For employers that have adopted the 12-month extended grace period or carryover for plans ending in 2021 to the next year, keep in mind the normal $5,000 annual limit will apply for 2022 if the increased DCA limit is not extended to 2022. This would result in amounts reimbursed beyond the $5,000 being included as taxable income to the employee.

For the dependent care change, can we pick any amount from $5000 to $10,500 if we don’t want to offer the full $10,500?

Yes, employers have flexibility as long as they don’t go over that $10,500.

Are dependents (a divorced spouse on COBRA) eligible for their coverage to be paid for as well?

No, the qualification is that it must be due to the employee being involuntarily terminated or reduction of hours, not for a divorced spouse.

Is the DCAP increase retro to 1/1/2021, and can a participant submit receipts for reimbursement on expenses incurred?

Yes, if the employer wants, they can go back to January 1, 2021, and make retroactive adjustments. Then the participant would be able to submit receipts.

Regarding FSAs, is the temporary increase to the annual limit for the Dependent Care only available to those currently who are participating in an FSA?

This is entirely up to the employer. They can choose to increase the level to $10,500 and allow mid-year enrollments. Again, be hesitant with increasing to $10,500 to make sure you will not incur any nondiscrimination issues we previously discussed.

Notice Questions & Answers

Who is creating the Notices regarding the new guidance issued on 2/26/2021 by the DOL and the IRS?

The Plan Sponsor is responsible for sending the notices. The DOL will not provide Model Notices for the Outbreak Period. They are going to provide Model Notices for the Subsidies. The Model Notice should be available on or before April 10.

Employers should check with their COBRA administrators as to the process and the associated costs.

What should you do if a plan sponsor changed COBRA administrators and neither the current nor former administrator are facilitating the notifications?

This is an issue that we’ve seen heard about, but there is no clear-cut answer. At Medcom Benefit Solutions, if we are the new carrier and the employer gives us all the information needed, we will provide the notices. I understand a lot will not do this.

Will Medcom be sending out the notices for current companies who use them as their TPA for COBRA?

Yes, employers received information on the Outbreak Period on Monday, March 29 via email. We will provide information on the Subsidies soon.

When can we expect to see a copy of the notice/letter?

For the Outbreak Period, Medcom Benefit Solutions is working with all the brokers, and notices to employers went out Monday, March 29 at 10 A.M. re: Notice to Employers: The Outbreak Period.

For the ARPA subsidies, we are waiting for the Model Notice due to be released on or before April 10, 2021. We did include this in our Notice.

Do you have to notify every member that was terminated since the start of the national emergency period? Is Medcom doing this as a COBRA administrator?

Yes, for the Outbreak Period notice.

For the ARPA COBRA subsidies, only those that were involuntarily terminated or had a reduction in hours for any reason. This would go back to November 1, 2019, for ARPA, and for the Outbreak Period, back to April 2020.

How many notices does the employer have to send out regarding ARPA?  We see the General Notice and the Notice of Expiration of Subsidy, but for some reason, we thought there might be a third notice?

The three Notices are the Availability of Subsidy, Election of Subsidy, and Termination of Subsidy.

General Questions & Answers

If the plan that was in place at the time of initial COBRA eligibility has since been replaced, does the assistance eligible individual have the right to elect the replacement plan, even if the premium is higher?

This question has not been answered yet by the DOL or the IRS, but if this is the only plan available, it would most likely be eligible, and if the plan is comparable coverage to what they had before, it is most likely covered.  Even if the employee upgraded at open enrollment, we believe it would be covered but are awaiting clarification from the IRS. This is because these are rights the employee already had, and we believe these rights will continue to be enforced.

Will the ARPA credit apply to employers that benefited from the PPP loans?

A good rule of thumb: No double-dipping. If the employer pays the full premium under PPP, they cannot get the PPP and ARPA money.  Waiting for clarification from the IRS.

What if an employer has a new plan/carrier?  Assume the new carrier must take an individual as of 4/1.  So, the employer started with a carrier 1/1, and now they have a COBRA participant who was never covered under this plan as of 4/1?

If they have a new plan or carrier, we believe that they would be eligible for that subsidy anytime during the period from April 1 through September 30, 2021, as long as they meet the definition of an AEI; meaning they were involuntarily terminated or had a reduction in hours, and they have not been offered other group coverage or Medicare.

For those that had a non-medical COBRA termination during the Outbreak Period, should they be offered the option to re-enroll?

Yes, if they were eligible for COBRA and had a triggering event that caused a loss of coverage.

If someone had family coverage as an active employee, left job involuntarily, selected COBRA for themself only, can they add their dependents during this special enrollment even if they were not previously on COBRA?

Yes, this is a special enrollment right and not contingent upon having COBRA before April 1 if they were qualified beneficiaries.

Subsidy Questions & Answers

For self-funded clients and the COBRA subsidy, do we continue to use the four-tier equivalent rates and not the admin fees for the subsidized premium and the 2%?

If this was how you were doing COBRA rates in the past, then yes.

I believe that the HRA funding amount is added to COBRA premiums that employees would pay for, so would the subsidy include this amount for the HRA, or do COBRA administrators have to strip out the HRA and then bill the members directly?

HRAs are health plans, and COBRA must be offered. HRAs would also be entitled to the subsidy.

Does the employer have to request a subsidy refund, or can they automatically deduct the amount of the COBRA premium from their payroll taxes due on Form 941?

It appears they will still be using Form 941, but it’s under Medicare taxes only. If it looks like they need an advance because their Medicare taxes aren’t going to cover the amount, we believe they will continue to use Form 7200 as they did for the Families First Coronavirus Response Act. We are still awaiting clarification.

A participant had no medical plan when they terminated. The group has had OE since the termination or will have OE during the subsidy period. The participant did not elect COBRA but will during the subsidy period. Can they add a medical plan and get the subsidy, or is the group only obligated to pay for the coverages they had when they termed?

If the employee was not on the medical or any COBRA eligible plan when they were terminated, they are not a qualified beneficiary and not entitled to COBRA or the subsidies. However, if the employee was on the medical plan when they were involuntarily terminated and did not choose COBRA but would have been eligible for COBRA anytime during the period from April 1 through September 30, 2021, then the plan they were enrolled in at termination, or the closest plan to it would be used to determine the subsidies, provided they did not make a change during open enrollment.

A participant had no medical plan when they terminated. The participant elected and paid for a dental plan. The group has had OE since the termination, and the participant added a medical plan. Will the employer pay the subsidy on this medical plan? Or is the group only obligated to pay for the coverages they had when they termed?

Since there was open enrollment, we believe that the plan would have to pay the COBRA subsidy; however, we are waiting for further guidance. We are saying this because we believe the IRS and DOL will not take away a “right,” and the subsidies are to help keep individuals insured. If questions come up during open enrollment, I would let the participant know that we are awaiting further guidance.

If someone is currently on their 18-month COBRA continuation and the group has Open Enrollment during the COBRA subsidy period 4/1 - 9/30/2021, is that COBRA participant eligible to elect up to a richer plan?

As in the previous question, we do not have official confirmation, but we believe they can. However, this has not been clarified by the IRS. Guidance would be appreciated from the IRS and the DOL. As soon as further information is released, we will set up another webinar and notify you via social media and here on our blog. If questions come up during open enrollment, I would let the participant know that we are awaiting further guidance.

Involuntary/Voluntary Questions & Answers

Does the re-up provision for COBRA apply only to involuntary terminations?

If you are talking about COBRA subsidies, it applies to involuntary terminations and reduction in hours for participants who have not been offered another group health plan or who have not become eligible for Medicare.

Disclaimer: The above guidance that we have provided is based on what we know today. The IRS has not issued any further guidance.

Stay tuned for more information as we navigate through these times.