Federal COBRA Subsidies Among Health, Leave Items in COVID Aid Bill
Subsidized COBRA premiums are included in COVID-19 relief legislation approved today by the House Ways and Means Committee. The measure fulfills several key health care parts of President Biden’s $1.9 trillion relief plan and also contains proposals to boost financial aid for employers providing emergency paid sick and family leave, increase employer-provided dependent care assistance, and enhance Affordable Care Act subsidies.
House Democrats plan a House vote soon and are advancing the legislation without support from Republicans as part of a larger aid package under the budget reconciliation process, which will allow the bill to avoid a Senate filibuster and pass with a simple majority in that chamber, rather than the typical 60-vote threshold. Senate Democrats have yet to unveil their version of the bill, and what health care and paid leave changes survive in a final bill that can clear Congress is uncertain. Democrats are intent, however, on sending relief legislation to the White House by March 14, when emergency federal unemployment benefits expire.
Federal COBRA subsides. The Ways and Means Committee measure would subsidize 85% of the cost of COBRA continuation health coverage for workers eligible for COBRA due to involuntary termination or reduction in hours (but not other COBRA qualifying events). The subsidy would be available to “assistance eligible individuals” beginning the first month following the date of enactment through September 30, 2021. A refundable payroll tax credit would be available to reimburse employers and plans for the full amount of COBRA premiums not paid by workers.
Employers could allow assistance eligible individuals to switch to less-expensive coverage, and would have to inform them about the availability of the COBRA subsidy and an extended COBRA election period. Employers would have to create an expedited review process for workers who are denied COBRA subsidies.
The legislation comes as some Democrats call for a 100% COBRA subsidy and a broad coalition of employers, labor unions, and other groups -- the Alliance to Fight for Health Care – push for subsides of no less than 90% during the pandemic. These and other supporters of a generous subsidy note that when Congress provided a 65% COBRA subsidy during the 2007-2008 financial crisis, it was still unaffordable for many unemployed workers (the subsidy was taken only by about one third of eligible individuals), saddling employers with sharply higher claims costs as primarily heavy users of medical services elected coverage.
Though not included in the Ways and Means bill, employer groups are continuing to urge against legislative efforts to substantially extend retroactive COBRA coverage and election periods. The Labor Department last year extended notice, election and premium payment deadlines from March 1, 2020, until 60 days after the end of the ongoing COVID-19 national emergency.
Paid leave changes. Modifications in the bill to the paid sick and family leave mandate enacted last year in the Families First Coronavirus Response Act (FFRCA) include increasing the limits on tax credits available to offset the cost of the leave for affected employers (fewer than 500 employees) and extending availability of the credits from March 31, 2021, through September 30, 2021. The tax credits could also be available to offset costs for leave taken for COVID-19 vaccinations and related health issues.
Increased income exclusion for dependent care assistance programs for 2021. The proposal would increase the amount of the income exclusion for employer-provided dependent care assistance programs – for example, employee pre-tax contributions to dependent care flexible spending arrangements (FSAs) – from $5,000 to $10,500 (and from $2,500 to $5,250 in the case of a separate return filed by a married individual) for 2021.
This income exclusion increase would be particularly helpful for those employers who adopted an unlimited carryover or extended grace period to allow employees to access unused 2020 FSA balances in 2021, as permitted under the 2021 Consolidated Appropriations Act enacted in December.
In addition, the bill would significantly increase eligibility for and value of the dependent care tax credit for 2021. Specifically, the credit would be fully refundable and the maximum credit percentage would increase to 50% (from 35%). The credit percentage would gradually phase down to 20% for individuals with incomes between $125,000 and $400,000, and would completely phase out for individuals with incomes in excess of $500,000. The amount of child and dependent care expenses eligible for the credit would increase to $8,000 (from $3,000) for one qualifying individual and $16,000 (from $6,000) for two or more qualifying individuals (such that the maximum credits would be $4,000 and $8,000).
Expanded and increased ACA marketplace subsidies for 2021 and 2022. Additionally, the bill would fully subsidize ACA marketplace coverage for people earning up to 150% of the federal poverty level and those receiving unemployment insurance. It would also expand subsidy eligibility to individuals earning more than 400% of the federal poverty level and cap their premium costs at 8.5% of income. This subsidy expansion would last for two years. The bill does not appear to make changes to the ACA’s employer shared responsibility rules.