Category: News

On March 26, 2021, the IRS issued IRS Announcement 2021-7, which clarifies that amounts paid for certain personal protective equipment (“COVID-19 PPE”) used to prevent the spread of COVID-19, including masks, hand sanitizer and sanitizing wipes can be treated as amounts paid for medical care under § 213(d) of the Internal Revenue Code.

Accordingly, because these amounts are expenses for medical care under § 213(d) of the Internal Revenue Code, these amounts can also be eligible expenses under a health flexible spending account (health FSA), health savings accounts (HSAs), health reimbursement arrangements (HRAs) and Archer medical savings accounts (Archer MSAs). Note, that if the amount is paid or reimbursed under one of these accounts, it is not deductible under § 213.

The IRS announcement also provides relief for group health plans, including health FSAs and HRAs, to amend their plans pursuant to provide for reimbursements of expenses for COVID-19 PPE incurred for any period on or after January 1, 2020.

Consistent with prior guidance, group health plans may amend their plans by the last day of the first calendar year beginning after the end of the plan year in which the amendment is effective. No amendment with retroactive affect can be adopted after December 31, 2022. Further, the plan must operate consistently with the terms of the amendment, including during the period beginning on the effective date of the amendment through the date in which the amendment is adopted.

Employer Action

Employers should review their plan documents. For plans that use a broad definition under 213(d) for eligible medical expenses, an amendment is not necessary. However, for plans with a narrower definition of 213(d), the definition of eligible medical expenses may need to be amended.

Along with the COBRA subsidy discussed in the alert issued March 11, 2021, the American Rescue Plan Act of 2021 (“ARPA” or the “Act”) provides the following additional relief:

• For calendar year 2021 only, an increase in the amount of pre-tax salary reduction election for a dependent care assistance plan (“DCAP” or “dependent care FSA”) to $10,500;
• Expansion of tax credits available to employers who voluntarily extend paid sick and family leave under the Families First Coronavirus Response Act (the “FFCRA”) through September 30, 2021; and
• An increase in premium tax credits for calendar year 2021 and 2022 for coverage purchased in the Marketplace.

While the COBRA subsidy is the most significant requirement for group health plans pursuant to the ARPA, this additional relief is discussed in more detail below.

Dependent Care Assistance Plan Relief

For 2021 only, the maximum pre-tax contribution limit to a DCAP has been increased from $5,000 to $10,500 (and from $2,500 to $5,250 for married filing individual returns).

Employers may amend their cafeteria plans to increase the pre-tax salary reduction to this higher limit for 2021 only. DCAP contributions are tracked on a calendar year. An amendment reflecting this change must be adopted not later than the last day of the plan year to which the amendment is effective (for a calendar year plan, by December 31, 2021). This change appears to be optional, rather than mandatory.

This change does not affect the ability for a plan to offer an unlimited carryover or grace period from the DCAP that ended in 2020 to 2021.

Voluntary Extension of Tax Credits for Emergency Paid Sick and Family Leave Through September 31, 2021

As of December 31, 2020, employers are no longer required to provide emergency paid sick leave and emergency family and medical leave. While the Consolidated Appropriations Act of 2021 did not extend the requirement to offer FFCRA emergency leave beyond December 31, 2020, it did extend the availability of tax credits for employers voluntarily providing this paid sick leave and expanded family and medical leave through March 31, 2021.

ARPA again extends the availability of these tax credits for up to an additional 10 days of paid sick leave taken between April 1, 2021 and September 31, 2021. The additional tax credits are allowed even if an employer obtained the maximum amount of tax credits and an employee previously exhausted paid sick leave or family leave days allowed under the FFCRA prior to April 1, 2021. Providing such leave remains voluntary as ARPA did not reinstate the required leave under FFCRA.

ARPA adds two additional reasons to the original six reasons where emergency sick leave may be provided by employers where:

• the employee is seeking or awaiting the results of a diagnostic test for, or a medical diagnosis of, COVID-19 and such employee has been exposed to COVID-19 or the employee’s employer has requested such test or diagnosis; and
• the employee is obtaining immunization related to COVID-19 or recovering from any injury, disability, illness, or condition related to such immunization after medical diagnosis thereof.

Employers may now receive tax credits for all the original reasons plus the above additional two reasons for taking leave.

Under ARPA, these tax credits are not available to employers that discriminate in favor of highly compensated employees, full-time employees or employees on the basis of employment tenure in providing the leave. on the basis of tenure.

Where the tax credit is claimed for family leave, ARPA increases the aggregate amount of wages that may be claimed from $10,000 to $12,000, removing the two-week waiting period on the emergency FMLA leave.

It is important to note that only private sector employers with fewer than 500 employees are eligible for these tax credits.

Increased Marketplace Subsidies

ARPA increases the premium subsidies that certain individuals who purchase health insurance coverage through the Marketplace exchange will receive and makes certain individuals newly eligible for subsidies for 2021 and 2022. Individuals who make more than 400% of the Federal Poverty Level (the “FPL”) will have a cap on their premium costs of 8.5% of their household income. Ordinarily, individuals who make more than 400% of the FPL do not qualify for premium assistance. Given the expansion of subsidies available to individuals above 400% of FPL, some large employers (50 or more full-time employees) may see increased exposure to penalty assessments under the ACA’s employer mandate to the extent coverage is not offered to full-time employees or is not affordable and full-time employees receive subsidies in the Marketplace to purchase coverage.

Employer Next Steps

• Employers should consider whether they want to increase the maximum pre-tax contribution limit to dependent care FSAs and, if so, must amend their cafeteria plans accordingly.
• Employers should determine whether it makes sense to voluntarily provide paid sick leave and paid family medical leave to continue to receive tax credits and should review and revise their policies. Remember that state laws may offer additional leave protections and should be reviewed.
• Large employers subject to the ACA’s employer mandate should be aware that more of their employees may be eligible for subsidies in the Marketplace for 2021 and 2022. This may increase the risk of penalty assessment when the employer is not offering group health plan coverage to at least 95% of full-time employees, offering unaffordable coverage or excluding up to 5% of full-time employees from an offer of coverage. Employers should continue to regularly review their exposure to penalties under the ACA.

Section 214 of the Consolidated Appropriations Act, 2021 (“CAA”) included optional and temporary relief for health flexible spending accounts (“health FSAs”) and dependent care assistance programs (“DCAPs”) offered in a Section 125 cafeteria plan (“cafeteria plan”). On February 18, 2021, the Internal Revenue Service (“IRS”) issued Notice 2021-15 providing guidance addressing these optional plan changes.

Briefly, highlights from the guidance include:

• Sec. 214 Health FSA and DCAP carryovers and extended grace period.
  • The Sec. 214 carryover and extended grace period are only available for plan years that end in 2020 and/or 2021.
  • The amount available to carry over may be less than the full unused amount at the end of the plan year.
  • The length of the extended grace period may be shorter than the allowable 12 months.
  • The carryover or grace period extension will not affect the maximum FSA and DCAP salary reductions for the year.
• Improved coordination with HDHP/HSA arrangements. Notice 2021-15 provides welcome relief to help participants preserve eligibility to contribute to a health savings account (“HSA”) when a health FSA includes a carryover or extended grace period. Employees would be able to “opt-out” of the traditional health FSA or make a mid-year election change to an HSA-compatible FSA.
• NEW: Mid-year election change relief for group health plan coverage. The guidance extends 2020 relief permitting mid-year election changes to prospectively enroll, disenroll, or change benefit options for group health plan coverage (medical, dental or vision) for plan years ending in 2021. Note, prior to adopting this relief, employers should obtain carrier (including stop loss carrier) approval.
• Form W-2 Reporting for DCAPs. Employers adopting the carryover or extended grace period relief for DCAPs will report the yearly salary reduction amount elected by the employee for the DCAP (plus any employer matching contributions). Employers are not required to adjust the amount reported in Box 10 due to the carryover or grace period.
• NEW: Retroactive amendment permitted for health FSAs or HRAs that offer over-the-counter (“OTC”) drugs and menstrual care products. Plans may be retroactively amended to allow reimbursement of expenses incurred on or after January 1, 2020, for menstrual care products and OTC drugs without a prescription.

Additional details on the above are below.

Sec. 214 Health FSA and DCAP Carryovers & Extended Grace Periods

Traditional Rules

A health FSA may permit a carryover of unused amounts remaining in the health FSA as of the end of the plan year (up to $550). A carryover is not permitted in a DCAP.

A health FSA and/or DCAP may permit a participant to apply unused amounts at the end of a plan year to pay expenses incurred for qualified benefits during a period of up to two (2) months and fifteen (15) days immediately following the end of the plan year. This is known as the “grace period.”

While inclusion of a carryover or grace period is not required, a health FSA may not have both a carryover and a grace period.

Sec. 214 Carryover and Extended Grace Period Relief

The Sec. 214 carryover relief allows an employer to amend the cafeteria plan to provide a carryover of all (or part of) the unused amounts remaining in a health FSA (including an HSA-compatible health FSA) or a DCAP as of the end of a plan year ending in 2020 and/or 2021 to the immediately subsequent plan year.

Under the extended grace period relief, an employer may amend the cafeteria plan to permit employees to apply unused amounts remaining in a health FSA or a DCAP as of the end of a plan year ending in 2020 and/or 2021 to reimburse expenses incurred for the same qualified benefit (medical care or dependent care) up to 12 months after the end of the plan year.

With respect to both the Sec. 214 carryover and the extended grace period, the following rules apply:

• The carryover and grace period are available to plans that currently have a grace period or provide for a carryover as well as plans that do not currently have these features. However, a plan may not have both a carryover and grace period. The plan amendment must specify which option is adopted for the applicable years.
• The amount available for carryover may be limited to less than all unused amounts and/or the employer may limit the carryover to apply only up to a specific date during the plan year.
• An employer may adopt an extended grace period that is less than 12 months.
• Amounts available because of the carryover and extended grace period will not impact the maximum salary reduction amount permitted in the calendar year.
  • For example, funds carried over from the 2020 plan year to a health FSA or DCAP will not impact an employee’s ability to elect $2,750 and $5,000 respectively, for 2021.
• The employer may require employees to enroll in the health FSA or DCAP at a minimum election amount to have access to unused amounts from the Sec. 214 carryover or extended grace period.
• Amounts carried over or available during an extended grace period are not taken into account for purposes of the nondiscrimination rules.
• If the employer adopts the carryover or extended grace period for the health FSA, the COBRA premium associated with the health FSA may not include unused amounts carried over or available during the extended grace period.

Coordination with HDHPs and HSAs

Generally, a carryover or grace period in a “traditional” or “general-purpose” health FSA is an extension of coverage by a health plan that is not a qualified high deductible health plan (“HDHP”) for purposes of determining whether an individual qualifies to make contributions to an HSA, except in the case of an HSA-compatible health FSA, such as a limited-purpose health FSA.

Notice 2021-15 provides welcome relief that allows an employer to amend the cafeteria plan in one of several ways to allow employees to maintain HSA eligibility as follows:

• Permit employees to opt out of the carryover or grace period on an employee-by-employee basis.
• Provide a mid-year election change that allows the employee to be covered by a general-purpose health FSA for part of the year and an HSA-compatible health FSA for part of the year.
• Permit each employee to choose between an HSA-compatible health FSA or general-purpose health FSA during the period when the Sec. 214 carryover or extended grace period applies.
• Automatically enroll employees who elect an HDHP into an HSA-compatible health FSA.

To the extent changes result in an employee being ineligible for an HSA mid-year on a prospective basis, the employee would not be considered HSA ineligible for the earlier part of the plan year.

Mid-Year Election Changes

Health FSA and DCAPs

Employers have the option to amend their cafeteria plan to permit employees to make prospective mid-year election changes for health FSAs and DCAPs for plan years ending in 2021 without a specific change in status event.

If adopted, an employee may make the following changes on a prospective basis with respect to health FSA and/or DCAP election for plan years ending in 2021:

• revoke an election,
• make one or more elections; or
• increase or decrease an existing health FSA or DCAP election.

A prospective election change may include an initial election to enroll in the health FSA and/or DCAP for the year. For example, an employee who initially declined to enroll in the health FSA, may make a prospective election to enroll in the health FSA to use a newly available Sec. 214 carryover or extended grace period.

The following applies with respect to these mid-year election changes:

• There is no “cash out” of the health FSA or DCAP permitted.
• Employers may limit mid-year election changes to amounts no less than amounts already reimbursed and to certain types of mid-year election changes, such as decreases in elections only.
• Employers may allow mid-year election changes without a status change up to a certain date (e.g., by March 31, 2021) during the plan year, but require a status change after that date.
• Employers may limit the number of election changes during the plan year that are not associated with a status change (e.g., allow only one election change in the 2021 plan year without a status change).
• Although salary reductions may only be applied prospectively under any revised election, employers may allow amounts contributed to the health FSA or DCAP after the revised election to be used for any medical care expense or dependent care expense, respectively, incurred during the first plan year that begins on or after January 1, 2021 through the end of the 2021 plan year.

If an employee’s election under a health FSA or DCAP is revoked, then the employer may adopt one of the following rules on a uniform basis:

• Amounts contributed before the election is revoked remain available to reimburse healthcare expenses or dependent care expenses (respectively) incurred for the rest of the plan year; or
• The amounts will be available only to reimburse eligible expenses incurred before the revocation takes effect (and not expenses incurred later).

Group Health Plan Coverage

While not included in the CAA, the IRS is again granting relief permitting employers to amend their cafeteria plan to allow employees to make prospective election changes for group health plan coverage (medical, dental or vision coverage) to:

• Enroll if the employee initially declined to elect employer-sponsored health coverage for the plan year;
• Enroll in a different level of health coverage (e.g., self-only or family) and/or modify their health coverage plan option (e.g., HMO to PPO) under the employer’s plan; or
• Revoke an existing election provided that the employee attests in writing that the employee is enrolled, or immediately will enroll, in other health coverage not sponsored by the employer that is not coverage solely for dental or vision benefits. The Notice provides an example of an acceptable attestation that may be used.

Employers may also determine a timeframe and the extent to which prospective election changes are permitted and applied (provided such changes comply with the Section 125 nondiscrimination rules) and may limit election changes to circumstances where the employee’s coverage will be increased or improved to avoid adverse selection.

The additional relief relating to employer-sponsored health coverage applies to employers who sponsor fully insured health coverage as well as those who sponsor self-funded health coverage.

It is important to note that nothing in the IRS guidance requires carriers or self-funded health plans (including stop loss insurance) to permit mid-year enrollment and/or coverage changes. Prior to implementing any mid-year election changes to the group health plan coverage, it is important to understand whether the carrier (including stop loss insurers) will allow for such changes mid-year.

Health FSA Spend Down

An employer may amend the health FSA to permit employees who cease participation in the health FSA during calendar year 2020 or 2021 to “spend down” their unused health FSA contributions through the end of the plan year in which participation ceased, plus any grace period thereafter (including an extended grace period). However, the Sec. 214 carryover relief (if adopted) will not apply after the end of the plan year in which participation ceased.

Notice 2021-15 clarifies:

• For this purpose, an employee may cease to be a participant because of a termination of employment, change in employment status, or a new election during calendar year 2020 or 2021.
• The employer may limit the unused amounts in the health FSA to the amount of salary reduction contributions the employee had made for the plan year through termination.
• If the employer offers this spend down feature, COBRA obligations still exist in the event the health FSA has a positive balance and the individual loses eligibility for the health FSA due to a termination of employment or reduction in hours.

Special Age Limit Relief – DCAP

Under this rule, if a dependent child reaches age 13 during the last plan year with respect to which the end of the regular enrollment period for the plan year was on or before January 31, 2020 (the “first plan year”), the employee can continue to receive reimbursements for such child’s dependent care expenses for:

• the remainder of the first plan year and, to the extent a balance remains at the end of the first plan year,
• the following plan year until the child turns age 14 (but only with respect to the unused amount from the first plan year).

This relief appears rather limited. For a calendar year plan, it only applies with respect to the January 1, 2020 – December 31, 2020 plan year (the last plan year where the enrollment period was before January 31, 2020), and, with respect to the 2021 plan year, to any unused amounts from 2020.

This special age limit relief for certain dependents is separate from the Sec. 214 carryover relief and extended grace period relief. An employer that adopts the special age limit relief is not required to adopt the carryover or grace period extensions in order to adopt the special age limit relief.

The special age limit relief does not permit a DCAP to reimburse expenses for a child who is age 14 or older.

In addition, Notice 2021-15 affirms that employers are permitted under a DCAP to limit reimbursements to expenses incurred for the care of a dependent child who is under a specified age that is less than age 13.

Reporting Requirements for DCAPs

Generally, amounts contributed to a DCAP are required to be reported in Box 10 of Form W-2. Under existing guidance, employers may report in Box 10 the yearly salary reduction amount elected by the employee for the DCAP (plus any employer matching contributions) and are not required to adjust the amount reported in Box 10 to take into account amounts that remain available in a grace period.

Notice 2021-15 extends this rule for Sec. 214 carryover and the extended grace period and will treat amounts carried forward or extended as an amount that remains available in the grace period.

The Treasury Department and the IRS anticipate that for the 2021 and 2022 Forms W-2 and 2441, instructions will provide for similar rules that DCAP amounts carried forward from prior years under this relief will be treated as amounts remaining available during a grace period for reporting purposes and no change to the reporting requirements will be necessary. Clarification as to how the individual may be taxed when the total benefits used in a calendar year exceed IRS thresholds would be welcome.

Plan Amendments

If any of the changes described in the CAA and Notice 2021-15 are implemented, the cafeteria plan must be amended no later than the last day of the first calendar year beginning after the end of the plan year in which the amendment is effective.

• For a January 1, 2020 to December 31, 2020 plan year, this means an amendment must be adopted no later than December 31, 2021.
• For a non-calendar year plan that begins in 2020 (e.g., June 1, 2020 – May 31, 2021), this means an amendment must be adopted by December 31, 2022.

In addition:

• The plan must be operated in a manner consistent with the terms of such amendment during the period beginning on the effective date of the amendment and ending on the date the amendment is adopted.
• The employer must inform all employees eligible to participate in the plan of the applicable changes being adopted. In addition, ERISA notification requirements may apply to any amendment of a health FSA or group health plan that is subject to ERISA.

Retroactive Amendments for OTC Drugs and Menstrual Care Products

In general, retroactive amendments are not permitted in a cafeteria plan, health FSA, or health reimbursement arrangement (“HRA”). Notwithstanding this general prohibition, Notice 2021-15 allows for a retroactive amendment in a health FSA and/or HRA to provide for reimbursements of expenses incurred on or after January 1, 2020 for menstrual care products and OTC drugs without a prescription. This relief includes amendments made prior to the issuance of this Notice.

Employer Action

Employers should:

• Consider what, if any, changes they wish to implement to their Section 125 plans in accordance with the CAA and this guidance.
• Work closely with FSA vendors to ensure any adopted provisions are being administered in accordance with the requested changes.
• Communicate all amended provisions, terms, and conditions with employees and consider incorporating limits on the allowable changes.
• Confirm with insurance carriers, third party administrators and stop loss insurers (if applicable) if you are considering allowing a mid-year change in elections under the group medical, dental and/or vision plans that the changes can be implemented.

The American Rescue Plan Act of 2021 was signed into law on March 11, 2021. The Act includes a 100% COBRA subsidy available to certain COBRA qualified beneficiaries who lose group health plan coverage as the result of an involuntary termination or reduction in hours.

Congress passed the American Rescue Plan Act of 2021 (“the Act”) on March 10, 2021 and it was signed into law on March 11, 2021. The Act includes a 100% COBRA subsidy available to certain COBRA qualified beneficiaries who lose group health plan coverage as the result of an involuntary termination or reduction in hours. This is different from the original House legislation, which included an 85% subsidy (with the COBRA beneficiary responsible for 15% of the COBRA premiums). Employers will be able to claim a credit against payroll taxes to reimburse the cost of the subsidy.

The COBRA subsidy begins April 1, 2021 (the first day of the month following enactment) and last through September 30, 2021.

While this subsidy provides welcome relief for many COBRA qualified beneficiaries, it will be administratively challenging for employers, especially given other relief afforded to COBRA elections and premiums payments under the Outbreak Period guidance.

The following FAQs explain the Act’s COBRA subsidy in more detail.

Who Qualifies for a Subsidy?

An assistance eligible individual (“AEI”) qualifies for the subsidy.

An AEI is, for the period of April 1, 2021 – September 30, 2021, an individual who is eligible for COBRA due to an involuntary termination of employment or a reduction in hours and who elects COBRA continuation of coverage. Individuals who voluntarily terminate from employment are not AEIs.

AEIs include:

• New COBRA qualified beneficiaries. Individuals who become COBRA qualified beneficiaries due to involuntary termination of employment or reduction in hours on or after April 1, 2021 but before September 30, 2021.
• Existing COBRA qualified beneficiaries. COBRA qualified beneficiaries due to an involuntary termination of employment or reduction in hours who currently have COBRA coverage and continue COBRA between April 1, 2021 – September 30, 2021.
• Second chance COBRA qualified beneficiaries. Individuals who were COBRA qualified beneficiaries due to an involuntary termination of employment or reduction in hours but, either (1) did not elect COBRA or (2) elected then dropped COBRA. Had they elected COBRA (or not dropped the coverage), they would have had COBRA coverage between April 1, 2021 – September 30, 2021.

How Much is the Subsidy?

The COBRA subsidy is 100%. This means AEIs will not pay any portion of their COBRA premium during the subsidy period (April 1, 2021 – September 30, 2021) so long as they remain subsidy eligible.

Employers are allowed a credit against Medicare payroll taxes to be reimbursed for the subsidy.

Is There a “Second Chance” to Elect COBRA?

Yes. There is a second chance for an individual who otherwise would be an AEI except the individual:

• Does not have a COBRA election in effect on April 1, 2021; or
• Elected COBRA coverage and later dropped the coverage.

In this case, the AEI may elect COBRA coverage (and the subsidy) beginning April 1, 2021. The maximum COBRA coverage period will be measured from their original qualifying event date had they elected COBRA (or not dropped the coverage).

As described later, a special notice will need to be provided and, upon receipt, these “second chance” individuals will have 60 days to elect COBRA continuation of coverage (retroactive to April 1, 2021).

This is likely to get very complicated with delayed election relief for the Outbreak Period which permits retroactive enrollment back to the original qualifying event date. Note, however, that subsidized premiums are only available beginning April 1, 2021. An individual who is eligible for both types of relief would be permitted to enroll in the subsidized coverage April 1, 2021 going forward. That said, more guidance on the interaction of the Outbreak period and COBRA subsidy would be helpful.

When Does the Subsidy End?

The subsidy naturally expires September 30, 2021. After that date, the full COBRA premium will be owed to continue COBRA coverage or to elect new COBRA coverage. Employers must provide notice within a specific window prior to expiration of the subsidy.

Additionally, if an AEI becomes eligible for other group health plan coverage or Medicare, the subsidy is no longer available. Mere eligibility (versus enrollment) is all that is required.

An AEI must notify the group health plan when the AEI is no longer eligible for the subsidy due to other coverage. Regulations will provide guidance as to the time and manner of this notification. A penalty of $250 applies for failure to notify. There is an exception when the failure is due to reasonable cause and not willful neglect. Note that It is possible for Congress to extend the subsidy beyond September 30, 2021 through future legislation.

How Far Back will we Have to Look for AEIs?

COBRA coverage due to a termination of employment or reduction in hours runs 18 months. Thus, individuals who experienced an involuntary termination of employment or reduction in hours and were in their COBRA election window beginning in November 2019 (or later) may be eligible for the subsidy relief.

What Coverage does the COBRA Subsidy Apply to?

The statute defines group health plan coverage broadly to include an employee welfare benefit plan providing medical care. While further guidance is likely to clarify this, we expect a subsidy to be available with respect to the following coverage:

• Major medical
• Dental
• Vision

This includes fully insured and self-funded group health plans.

Can AEIs Change their COBRA Coverage?

An employer may, but is not required to, allow an AEI to enroll in a different, lower cost plan option than the coverage the individual was enrolled in at the time the qualifying event occurred. The different plan option must be offered to similarly situated active employees of the employer at the time the election to change the plan is made. The different plan option cannot be excepted benefits (e.g., dental coverage), a qualified small employer health reimbursement arrangement (QSEHRA) or a health flexible spending account (health FSA).

An AEI has 90 days after the date of notice of this plan enrollment option to elect to enroll in the different coverage option.

Employers considering allowing enrollment in a lower cost plan option should obtain carrier (including stop loss carrier) approval. Not all carriers may allow for this flexibility.

Are there Notice Requirements?

There are multiple notice requirements associated with the subsidy.

Election Notice

COBRA election notices for AEIs who become entitled to COBRA coverage between April 1, 2021 – September 30, 2021 must be updated to include information on the availability of premium assistance and, if applicable the ability to enroll in a lower cost plan option. Employers may use a separate document that includes the required information.

In addition, notice must be provided to AEIs who have a “second chance” to elect COBRA and obtain the subsidy. This notice must provide by May 31, 2021 (60 days from April 1, 2021 – first of the month following enactment). Failure to provide such notice will be treated as a failure to meet the notice requirements under COBRA.

Briefly, the notice must include:

• forms necessary to establish eligibility for the subsidy;
• contact information for the employer or other entity maintaining information in connection with the subsidy;
• a description of the:
  • extended election period;
  • obligation of qualified beneficiaries to notify the plan when no longer eligible for the subsidy and the penalty for failure to notify;
  • qualified beneficiaries’ right to a subsidized premium and any conditions on entitlement to the subsidy (displayed prominently); and
  • option (if available) for the qualified beneficiary to enroll in a different coverage option.

A model notice will be available within 30 days after the date of enactment. It is possible the Departments will require additional notifications as part of their guidance.

Notice of Option to Change COBRA Coverage

If an employer allows AEIs to change to a different, lower cost plan option notice must be provided to inform the AEI of this option.

Notice of the Expiration Period for Premium Assistance

A notice must be provided to an AEI about the upcoming expiration of the available subsidy except in cases where the subsidy is no longer available due to eligibility for other group health plan coverage or Medicare.

The notice must be provided beginning on the date that is 45 days before the subsidy ends and ending on a day that is 15 days before the expiration and must be written in clear and understandable language. It must be provided to the AEI and indicate that the AEI’s subsidy will expire soon and include the date of the expiration in a prominent manner.

A model notice will be available 45 days after enactment.

Who May Claim the Tax Credit?

The “person to whom premiums are payable” may claim the tax credit. In the case of a group health plan that is subject to COBRA, this is the employer maintaining the plan.

Employers may apply to credit against Medicare payroll taxes to reimburse the cost for the COBRA subsidy.

What Should Employers Do Now?

• Connect with your COBRA vendor to discuss administration for this new COBRA subsidy. This will include:
  • issuing notices to the “second chance” AEIs by May 31, 2021;
  • updating election notices to reflect the subsidy for COBRA events between April 1, 2021 and September 20, 2021; and
  • issuing notice to AEIs when their individual subsidy is set to expire in accordance with required timeframes
• Identify all individuals who may qualify as AEIs. This will include individuals who may not have elected COBRA (or dropped COBRA) but are still within the 18-month maximum COBRA period. Employers may need to look back to individuals who experienced an involuntary termination of employment or reduction and were otherwise eligible for COBRA beginning in November 2019.
• Discuss the COBRA subsidy with payroll departments and await further guidance for clarification on claiming the tax credit.
• Await further guidance and model notices. Hopefully, any guidance or notices will address the COBRA deadlines impacted by the Outbreak Period and how this intersects with the COBRA subsidy and applicable notices.

On February 26, 2021, the Departments of Labor, Health and Human Services, and the Treasury (together, the “Departments”) issued FAQ 44 addressing health coverage issues related to COVID-19.

Briefly, the new FAQs focus on diagnostic testing and coverage for testing and clarify previous guidance in FAQs.

Background

Section 6001 of the FFCRA requires group health plans (including grandfathered health plans) and health insurance issuers to provide coverage for certain items and services related to testing or the diagnosis of COVID-19 without any cost-sharing requirements, prior authorization or other medical requirements. Section 3201 of the CARES Act amended Section 6001 of the FFCRA to include a broader range of diagnostic items and services that must be covered the same way. Since the FFCRA and CARES Act have been enacted, the Departments have issued several sets of FAQs to help people better understand the laws.

The guidance clarifies that:

• medical screening criteria may not be used to deny (or impose cost sharing on) a claim for COVID-19 diagnostic testing for an asymptomatic person who has no known or suspected exposure to COVID-19. Plans and carries may still distinguish between asymptomatic people and general workplace testing.
• referrals for COVID-19 testing that come from a licensed or authorized health care provider are assumed to reflect an “individualized clinical assessment” and the test should be covered without cost sharing, prior authorization, or other medical management requirements.
• providers may limit eligibility for testing based on clinical risk or management of testing supplies
• plans and issuers are not required to provide coverage for testing for employment purposes (though they may)
• there is no distinction between point-of-care testing (i.e., drive through) and other testing for coverage purposes
• all COVID-19 vaccines recommended by Centers for Disease Control and Prevention (“CDC”) must be covered without cost sharing. As of the date of this bulletin, the Pfizer and Moderna vaccines must be covered. The Johnson and Johnson vaccine is expected to require coverage by March 18, 2021.
• COVID-19 vaccines must be covered without cost sharing regardless of how it is billed and regardless of whether the vaccine requires the administration of multiple doses in order to be considered a complete vaccination
• coverage of a recommended COVID-19 vaccine may not be denied because an individual is not in a category recommended for early vaccination – the coverage must be provided regardless of priority set by states and local jurisdictions.
• although on-site medical clinics are always excepted benefits, COVID-19 vaccines may be offered at on-site medical clinics as excepted benefits.
• an Employee Assistance Plan (an “EAP”) will not be considered an excepted benefit solely because it offers benefits for COVID-19 vaccines and their administration but there must be no cost-sharing.
• The Departments will not take enforcement action against any plan or issuer that does not provide at least 60 days’ advance notice of a change affecting the SBC to reflect the addition of coverage for qualifying coronavirus preventive services, as such services must be covered on an expedited timeframe. However, plans and issuers must provide any required notice of the changes as soon as reasonably practicable.

Employer Action

Plan sponsors should review the Departments’ new guidance and confirm with their carriers or TPAs that the plans they sponsor are meeting the requirements contained in the new FAQs.

A COBRA subsidy is included in early drafts of the proposed fiscal year 2021 budget reconciliation package. If finalized, the COBRA subsidy would apply to workers who have lost group coverage during the COVID-19 pandemic due to involuntary termination or reduction in hours of employment.

Briefly,

• The COBRA premium subsidy will be available to assistance eligible individuals beginning the first month following the date of enactment through September 30, 2021.
  • The proposed definition of an assistance eligible individual means, with respect to a period of coverage beginning on the first day of the month follow the date of enactment and ending on September 30, 2021, a qualified beneficiary who:
    • Is eligible for COBRA continuation of coverage due to involuntary termination or a reduction in hours (excludes voluntary termination); and
    • Elects such coverage.
• Assistance eligible individuals pay 15% of their total COBRA premium during this period.
• A payroll tax credit will subsidize 85% of the total COBRA premium.
• An extended election period is available to allow workers who previously experienced a COBRA qualifying event to enroll in coverage and take advantage of this relief.
• Employers will be required to provide clear and understandable written notices about the availability of the COBRA subsidy.

Under the proposed reconciliation bill, additional ACA Marketplace premium assistance would also become available to individuals not eligible for COBRA.

Employer Action

The legislation is in the early stages and is not final. However, if finalized “as-is,” the COBRA subsidy, extended COBRA election period and notification requirements would raise a host of additional compliance issues and responsibilities for employers. Coordination between COBRA vendors, insurance carriers (including stop loss) and third-party administrators will be important to ensure compliance with this requirement (if enacted).

We will continue to monitor developments and provide additional details if the COBRA subsidy is enacted into law.

Summaries

Medicare Part D – CMS Notification Reminder

Employers sponsoring a group health plan are required by federal law to inform the Centers for Medicare and Medicaid Services within 60 days after the beginning of the plan year about the creditable status of the plan’s prescription drug coverage. Click below for a reminder of this filing date.

Reminder: Final 2020 Forms 1094-C and 1095-C Issued

Applicable large employers must furnish the 2020 Forms 1095-C to its full-time employees by no later than Tuesday, March 2, 2021. Click below for a reminder.

Medicare Part D – CMS Notification Reminder

Employers sponsoring a group health plan (whether insured or self-insured) need to report information on the creditable (or non-creditable) status of the plan’s prescription drug coverage to the Centers for Medicare and Medicaid Services (CMS). In order to provide this information, employers must access CMS’s online reporting system at:https://www.cms.gov/Medicare/Prescription-Drug-Coverage/CreditableCoverage/CCDisclosureForm.html.

As a reminder, notice must be provided by the following deadlines:

• Within 60 days after the beginning date of each plan year;
• Within 30 days after the termination of the prescription drug plan; and
• Within 30 days after any change in the creditable coverage status of the prescription drug plan.

For example, an employer with a calendar year plan (January 1 – December 31, 2021) must complete this reporting no later than Monday, March 1, 2021.

Additional guidance on completing the form is available at:https://www.cms.gov/Medicare/Prescription-Drug-Coverage/CreditableCoverage/CCDisclosure.html.

Reminder: Final 2020 Forms 1094-C and 1095-C Issued

The IRS released final 2020 Forms 1094-C, 1095-C, and applicable instructions. Applicable large employers (“ALEs”) must furnish Form 1095-C to full-time employees and file Form 1094-C and all 1095-Cs with the IRS. ALEs offering a self-insured group health plan must also furnish Forms 1095-C to covered employees or other primary insured individuals in the self-funded health plan (e.g., COBRA qualified beneficiaries).

Due to the COVID-19 pandemic and challenges to business operations, ALEs may have variations to their reporting for 2020 due to furloughs and/or layoffs. ALEs, in coordination with their payroll or other reporting vendors, should have records to determine each employee’s status as an ACA FTE or not an ACA FTE for each month during 2020 in preparation to complete, furnish and file these forms for 2020.

As a reminder, IRS Notice 2020-76 provided the following extended relief related to 2020 reporting:

• Extension of due date to furnish Form 1095-C. 2020 Forms 1095-C are due to employees by March 2, 2021 (instead of January 31, 2021).
  • Filing the 2020 Form 1094-C and all Forms 1095-C with the IRS has not been extended and is due March 31, 2021 (for filing electronically) or March 1, 2021 (for paper filing, as permitted).
• Extension of good faith relief for reporting and furnishing. The IRS will not impose a penalty for incorrect or incomplete information on Form 1095-C, if there is a good faith effort to comply

What’s New?

For 2020, there are some notable changes to the Forms, specifically addressing individual coverage health reimbursement arrangements (“ICHRAs”). For employers that do not sponsor an ICHRA, much of the reporting remains the same.

• On Form 1095-C, Part II the “Plan Year Start Month” is a required field. An ALE must enter a two-digit number to reflect the plan year start month (e.g., for January 2020, use “01”, for June 2020, use “06”). In previous years, this was optional.
• To accommodate reporting associated with ICHRAs:
  • In Part II, there is a new reference to the “Employee’s Age on January 1” and “Line 17 Zip Code”.
    • If an ICHRA is not offered, do not complete these fields.
  • In Part II, there are new Codes (used in Line 14) used to report offers of ICHRAs. The new Codes are 1L, 1M, 1N, 1O, 1P, 1Q, 1R, 1S, 1T, and 1U.
    • If an ICHRA is not offered, these new codes should not be used.
  • There is also information in the instructions on how to calculate the amount reported on Form 1095-C, Line 15 for an ICHRA offer of coverage.
  • Part III must be completed with respect to coverage through an ICHRA.

Note to non-ALEs. While small employers (non-ALEs) are not subject to reporting for purposes of the employer mandate, if offering a self-insured group health plan or ICHRA, reporting under Section 6055 to the IRS and to covered employees or other primary insured individuals who have coverage provided through a self-insured group health plan is required. In most cases, a non-ALE will use Forms 1094-B and 1095-B to satisfy this requirement. If a non-ALE is offering an ICHRA, that coverage is considered a self-insured health plan and is subject to this reporting requirement. According to the instructions, a new code “G” must be entered on Form 1095-B, line 8 to identify an ICHRA.

Penalties

Failure to furnish a correct Form 1095-C may result in penalties of $280/form with an annual calendar year maximum of $3,392,000. Failure to file correct Forms 1095-C and 1094-C with the IRS may result in penalties of $280/form with an annual calendar year maximum of $3,392,000.

As announced in Notice 2020-76, there is good faith penalty relief available with respect to incorrect or incomplete information on the applicable Forms.

In addition, penalties may be waived if the failure was due to reasonable cause and not willful neglect.

Forms and Instructions

2020 Form 1094-C,https://www.irs.gov/pub/irs-pdf/f1094c.pdf

2020 Form 1095-C,https://www.irs.gov/pub/irs-pdf/f1095c.pdf

2020 Instructions for Forms 1094-C and 1095-C,https://www.irs.gov/pub/irs-pdf/i109495c.pdf

President Biden issued an executive order requiring the U.S. Department of Health and Human Services to consider having a mid-year special enrollment period for the federally-facilitated Marketplace to enable uninsured and under-insured consumers to obtain healthcare coverage.

Today the Departments of Labor and the Treasury issued guidance addressing the COVID-19 Outbreak Period. Unexpectedly, they have taken the interpretation that these benefit plan deadline extensions generally apply on an individual-by-individual basis.

The Department of Labor (DOL) published the annual adjustments for 2020 that increase certain penalties applicable to employee benefit plans.

Annual Penalty Adjustments for 2021

The following updated penalties are applicable to health and welfare plans subject to ERISA.

Description	2020 Penalty	2021 Penalty
Failure to file Form 5500	Up to $2,233 per day	Up to $2,259 per day
Failure of a MEWA to file reports	Up to $1,625 per day	Up to $1,644 per day
Failure to provide CHIP Notice	Up to $119 per day per employee	Up to $120 per day per employee
Failure to disclose CHIP/Medicare Coordination to the State	$119 per day per violation (per participant/beneficiary)	$120 per day per violation (per participant/beneficiary)
Failure to provide SBCs	Up to $1,176 per failure	Up to $1,190 per failure
Failure to furnish plan documents (including SPDs/SMMs) to DOL on request	$159 per day $1,594 cap per request	$161 per day $1,613 cap per request
Genetic information failures	$119 per day (per participant/beneficiary)	$120 per day (per participant/beneficiary)
De minimis failures to meet genetic information requirements	2,970 minimum	$3,005 minimum
Failure to meet genetic information requirements – not de minimis failures	$17,824 minimum	$18,035 minimum
Cap on unintentional failures to meet genetic information requirements	$594,129 maximum	$601,152 maximum

Employer Action

Private employers, including non-profits, should ensure employees receive required notices timely (SBC, CHIP, SPD, etc.) to prevent civil penalty assessments. In addition, employers should ensure Form 5500s are properly and timely filed, if applicable. Finally, employers facing document requests from EBSA should ensure documents are provided timely, as requested.