The American Rescue Plan Act of 2021

American Rescue Plan

On Wednesday, March 10, 2021, Congress approved the American Rescue Plan Act of 2021 and it was signed into law on March 11th, but what does that mean for COBRA coverage and Dependent Care FSAs?

We’ve gathered some key points to help break it down.

COBRA Continuation Coverage

  • Subsidizes 100% of premiums for eligible state and federal COBRA recipients for continuation coverage if they lose their job through Sept. 30, 2021 and no longer available once an individual becomes eligible for coverage under another group health plan or Medicare.
  • Premium initially is “advanced” by the employer, plan, or insurer and then reimbursed by the government through a refundable tax credit (against Medicare hospital insurance (HI) taxes).
  • Creates a special election period for any individual who did not elect federal COBRA continuation coverage but who otherwise would have been eligible for the COBRA subsidy and for any individual who elected federal COBRA continuation coverage and discontinued such coverage before April 1, 2021.
  • Subsidy applies for any period of coverage during the period April 1, 2021 through September 30, 2021 (the Period of Coverage).
  • For self-insured plans, the COBRA premium is covered by the employer and reimbursed through a payroll tax credit. For fully insured plans, the tax credit is claimable by the insurer.
  • Provides for a “Plan Enrollment Option,” which may permit assistance eligible individuals to change coverage to a lower-cost option within 90 days of receiving the required employer notice, provided the plan sponsor determines to permit such change, the premium for such lower-cost option is less than the premium for the coverage option in which the individual was enrolled at the time the COBRA qualifying event occurred, the lower-cost option is offered to similarly situated employees, and the lower-cost option provides more than limited health coverage (coverage other than coverage providing only excepted benefits, qualified small employer health reimbursement arrangement coverage, or flexible spending arrangement coverage).

Dependent Care FSAs

  • The dependent care FSA limit for 2021 from $5,000 to $10,500 (from $2,500 to $5,250 for married filing single).
  • An employer can amend its cafeteria plan retroactively to adopt this increased limit, as long as it amends the plan by the end of the plan year and operates consistently with the amendment.

What does this mean for employers?

COBRA Subsidy: Qualified COBRA participants will now have their COBRA covered at 100% from April 1, 2021 through September 30, 2021. Employers will be required to pay carriers directly and receive reimbursement through refundable tax credits. Employers should start gathering the names of COBRA qualified beneficiaries who had a qualifying event in 2020 so they can make sure that anybody who is eligible for COBRA during the six-month subsidy period gets a notice and ability to elect COBRA.

There will be requirements for COBRA notices to include information about the subsidy.

*If you are managing COBRA internally, and the ever-changing legislation is making it difficult to manage, HRPro can help.

Dependent Care increase: Your plan is still subject to non-discrimination rules. If you are planning to increase the contribution amount, you may want to consider running a non-discrimination test first to see what tax implications the increase may have. You plan will also need to be amended to allow the increase.

If you have questions on how any of this new legislation may affect you, reach out to HRPro at