By Christy Abend
The American Rescue Plan Act of 2021
In January of 2021, President Biden signed the American Rescue Plan into law. Believing that the COVID-19 pandemic and the US economic crisis are directly intertwined, the Biden Administration’s Plan seeks to solve for both by (1) providing economic relief for working families and communities; and (2) making COVID-19 vaccines easily accessible.
On its surface, it may seem like the American Rescue Plan Act (ARPA) will have little to no effect on employers, but the impacts are still there — only subtle.
More Individuals Will Qualify for Marketplace Subsidies
The Affordable Care Act (ACA) mandates that applicable large employers must offer affordable health coverage to full-time employees. Failure to do so can result in a $4,060 penalty per employee who receives a subsidy through the Marketplace.
The ARPA removes the income cap for 2021 and 2022, that prevented individuals who were making greater than 400% of the federal poverty level (FPL) from being eligible for tax credits while enrolling in coverage through marketplace health insurance plans. With the FPL cap lifted, more individuals will qualify for marketplace subsidies. In addition, the ARPA reduces the maximum an individual must pay for marketplace coverage to 8.5% of income, compared to the ACA 9.83% affordability threshold for 2021. Lastly, for individuals enrolling in coverage through the marketplace who make between 100% and 400% of the FPL, subsidies will be increased, further reducing the cost to the insured. These changes result in greater eligibility for, or an increase to, subsidies that are provided for coverage, further incentivizing enrollment in a marketplace insurance plan. A special enrollment period has been extended to August 15th, allowing individuals additional time to take advantage of the new subsidies. This places even greater risk on employers who fail to offer IRS-mandated affordable coverage.
Incentive for States to Adopt ACA Medicaid Expansion
The ARPA offers fiscal incentives for the 12 states who have not already opted into medicaid expansion, as well as the two states (Missouri and Oklahoma) who are planning to fully implement medicaid expansion by July 2021. There are various benefits to be recognized with these incentives, including:
Federal Medical Assistance Percentage (FMAP) of 85% for the first three years to states that begin to offer crisis intervention services to Medicaid enrollees outside of medical facilities
10% FMAP increase for home- and community-based services
State Medicaid programs can extend coverage for pregnant and postpartum women from 60 days to one year after giving birth
Medicaid expansion in these 14 states could have a positive impact on an employer’s ability to comply with the employer mandate section of the Affordable Care Act, as individuals who earn greater than 100%, but less than or equal to 38% of the federal poverty level, will newly become eligible for medicaid coverage. Individuals who qualify for medicaid coverage are not otherwise eligible for a subsidy through the insurance marketplace. This means that these individuals, if employed by an applicable large employer, will no longer pose 4980H(b) fine risk by triggering a penalty after receiving a subsidy. Employers must keep in mind that while (b) fine risk may be reduced, failure to offer to at least 95% of their benefit eligible population could still result in exposure to the 4980H(a) penalty, the much more costly penalty of the two.
Free and Extended COBRA Coverage
The Consolidated Omnibus Budget Reconciliation Act (COBRA) requires employers with group health plans to offer continuation of health coverage for 18 months to employees and their covered dependents who lose their health benefits through no fault of their own.
Under the ARPA, 100% of COBRA premiums will be subsidized for six months, from April 1 - September 30, 2021, for workers who have lost coverage due to layoff or a reduction in hours. Employers will be responsible for the premiums and will be reimbursed through a tax credit when filing their quarterly FICA tax returns. Employers must send notification to employees who are currently eligible for COBRA coverage as well as employees who were eligible prior to April 1 that chose not to enroll or had COBRA coverage terminated for non-payment, provided they would have otherwise been eligible on April 1. Employees who are already enrolled in COBRA coverage must also be given an opportunity to change insurance plans given the newly subsidized coverage.
Since the employee is not responsible for the COBRA premiums during this time, employers will have a lower risk of incurring a 4980H(b) Penalty. However, this means that employers should be diligent in keeping records of exactly how much they spent on COBRA premiums during this time. In addition, it will be imperative that employers report the correct cost of coverage on form 1095-C for employees who receive COBRA premium subsidies, in order to avoid unnecessary compliance risk for inaccurate reporting or reporting inflated premiums.
Advice for Employers
Now more than ever it is essential to maintain your ACA reporting requirements. While the ARPA’s COBRA changes and medicaid expansion programs can help employers avoid incurring 4980H(b) fines, the key takeaway of the ARPA for employers is the added risk for noncompliance. With the 400% FPL cap lifted and more employees becoming eligible for subsidies, employers must work even harder to maintain your ACA reporting requirements.
Whether you manage ACA reporting requirements in-house or through an all-in-one system or third party, ensure that:
You’re keeping accurate records of offers of coverage and responses
Your data is up-to-date and accurate throughout the year, especially if you employ both part-time and full-time employees
You’re using measurement periods correctly
Your system is equipped to discover and alert you of any unexpected part-time employees becoming ACA benefits eligible who need an offer of coverage
Your 1095 code combinations are accurate
You are filing on time, every time
Get Help with Your ACA Reporting Requirements
It is no secret that the ACA is complex and constantly changing, making it even harder for employers to comply year after year. If your organization needs help managing ACA reporting for prior, current, or future years, contact our specialized ACA team at Equifax.
Equifax is not providing, and cannot provide, tax or legal advice on any legal issues relating to ACA requirements. Your company should work with its legal counsel, tax and other experts to make all determinations regarding specific ACA obligations