On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 (ARPA). ARPA is the latest COVID-19 relief stimulus bill and it includes several benefits-related provisions, which are discussed in more detail below.

ARPA became effective on March 11, 2021.

Before a bill like ARPA becomes law, it must pass in Congress (both the Senate and House of Representatives), then be signed by the President. The Senate passed ARPA on Saturday, March 6, 2021. The U.S. House of Representatives spent four days debating the bill and passed a final version that Congress sent to the President on Wednesday, March 10, 2021. The President completed the final step of signing the bill Thursday, March 11, 2021. However, as will be explained further below, some of the provisions do not become effective until April 1, 2021.

ARPA is more than just a direct-payments stimulus bill.

ARPA provides another round of direct payments to taxpayers of up to $1,400 to individuals earning up to $80,000, single parents earning $120,000 or less, and couples with household incomes of no more than $160,000. ARPA also provides:

  • An extension of federal jobless benefits;
  • Funding for the distribution of coronavirus vaccines;
  • Relief dollars for school reopenings;
  • Subsidies for states and small businesses;
  • An Enhanced Premium Tax Credit;
  • Credits for Paid Sick and Family Leave;
  • Changes to Dependent Care Assistance Programs (DCAP); and
  • Consolidated Omnibus Budget Reconciliation Act (COBRA) changes including a 100% premium subsidy.

The following paragraphs discuss the significant provisions of interest to group health plans (GHPs), plan sponsors, administrators and advisors in greater detail.

ARPA expands the Affordable Care Act (ACA) premium tax credit for the 2021 and 2022 taxable years.

In response to the COVID-19 national emergency, President Biden issued an Executive Order creating a HealthCare.gov ACA Marketplace special enrollment period (SEP) from February 15, 2021, and ending on May 15, 2021. The ARPA revised the existing ACA Marketplace tax credit to increase the credit amount available to those income bands that qualify. The credits are available to those who purchase coverage on the Marketplace Exchange (HealthCare.gov) and earn 100% to 400% of the federal poverty level (FPL). ARPA eliminates the upper-income limit for eligibility and decreases the percentage of household income that individuals must contribute to Exchange coverage. The adjusted household contribution amounts range from 0% to 8.5%, amended from the 2021 amounts of 2.06% to 9.83% of household income. 

Credits for Paid Sick and Family Leave are extended under ARPA.

Families First Coronavirus Response Act (FFCRA), signed into law in March 2020, gave tax credits to employers with 500 employees or fewer to reimburse them for making required payments for pandemic-related sick or family leave. ARPA extends those tax credits until September 30, 2021. FFCRA required leave expired on December 31, 2020, but covered employers that voluntarily provide leave are eligible to receive tax credits. ARPA’s extension does the following:

  • Applies the credit to Medicare taxes rather than Social Security; 
  • Restarts the 10-day limit on the amount of qualified sick-leave wages taken into account with respect to any employee; 
  • Increases the aggregate maximum credit for qualified family leave wages to $12,000; and 
  • Adds a nondiscrimination requirement.
DCAP election amounts are increased for the 2021 year under ARPA.

ARPA increases the maximum amount that a participant can withhold from taxable income for the 2021 plan year. The maximum DCAP amount is $10,500 for married or single filers and $5,250 for separate filers. Prior to the increase, the maximums were $5,000 and $2,500, respectively. Employers have the option, but are not required, to increase the employee election amount. Any changes to election deferral amounts will require a plan amendment.

ARPA makes several temporary changes to COBRA relevant to GHPs, plan sponsors, administrators and advisors.

COBRA requires most GHPs to provide an 18-month continuation of group health coverage that otherwise might be terminated. ARPA creates a 100% COBRA subsidy and additional COBRA enrollment rights for particular COBRA qualified beneficiaries (QBs); those who have lost group health plan coverage due to an involuntary termination of employment or reduction of hours. 

How COBRA typically operates for qualified individuals.

After a COBRA qualifying event occurs, an employer has 14 days to notify the administrator. Then the administrator has 30 days to send the notice to the QB. The QB then has 60 days to elect. 

The Election Notice provides QBs with information about continuing benefits under COBRA. The notice must include specific information such as the plan name, description of benefits, the plan administrator’s contact information, the qualifying event, termination date, names of the QBs, election procedures, the election deadline and payment information.

An individual has 60 days after the latter of the date they experience a qualifying event or receive their COBRA Election Notice to elect COBRA continuation coverage. After electing continuation coverage, the qualified individual has 45 days to make their first premium payment with a 30-day grace period to make premium payments for subsequent months of continuation coverage. If an employer makes the COBRA qualified individual responsible for the entire premium, it is typically 102% of the plan cost (for self-funded plans, the cost is based on the COBRA premium equivalent rate). Failing to make the initial premium payment or timely monthly payments results in a loss of COBRA coverage in normal circumstances. The above-described payment deadlines are disregarded during the Outbreak Period.

How COBRA operates under the Outbreak Period timeframe extensions.

In 2020, the Department of Labor (DOL) released guidance requiring plan sponsors to disregard certain deadlines for notice and elections under Employee Retirement Income Security Act (ERISA) plans called the “Outbreak Period.” The Outbreak Period is defined as 60 days after the National Emergency’s announced end but cannot last more than 12 months. The Outbreak Period and Extended Time Frames Guidance as provided in Disaster Notice 2021-01 outlines several changes in the number of time individuals have to make COBRA continuation elections and premium payments. The time frame extensions allow a qualified individual to disregard COBRA elections and premium payments until the earlier of (a) one year from the date they were first eligible for relief or (b) the end of the Outbreak Period. Individuals who elect continuation coverage must retroactively pay for any months of coverage they were eligible for before their election month. COBRA timeframes to elect and pay begin at the end of the disregarded period.

The interaction between COBRA election and payment under the Disaster Relief Notice 2020-01 and 2021-01 and the ARPA creates confusion and administrative burden for COBRA administrators and plan sponsors.

How COBRA operates under ARPA adds several revisions to how COBRA usually works under the timeframes.

First, ARPA creates a 100% subsidy for COBRA QBs that takes effect on April 1, 2021, and expires on the earlier of September 30, 2021, or when a QB becomes eligible for other GHP coverage (through their own employer or spouse) or Medicare. It requires employers to subsidize COBRA’s full cost starting April 1 for those individuals and their dependents who experience a COBRA event due to involuntary termination or reduction in hours. Individuals are eligible for the subsidy as long as they are not eligible for other coverage. The QB must notify the employer if they become eligible for other coverage or risk a $250 fine.

Employers can recover premiums that QBs did not pay through a payroll tax credit. However, employers should note that the tax credit is based on the amount of COBRA premiums paid, not the COBRA claims that the plan pays. 

Second, ARPA creates what is colloquially known as a COBRA election “second chance.” The second chance allows individuals who did not elect, or elected and subsequently dropped, COBRA coverage to enroll or re-enroll in COBRA. These individuals, who are still within their 18-month COBRA maximum period to enroll in COBRA beginning April 1 and receive the subsidy for their remaining months of COBRA eligibility or September 30, whichever is earlier. COBRA continuation coverage cannot exceed the 18 months of eligibility backdated to the date the individual first became qualified for COBRA. Under the deadline extension rules, they MAY choose to elect and pay for retroactive coverage, but they are not required to do so to take advantage of the subsidy. However, they will have a gap in coverage if they don’t retroactively pay for the coverage period before their April 1 election. Below is an example of how the “second chance” election and subsidy would function.

Avery did not enroll in COBRA initially and had nine months left of her 18-month maximum and elects COBRA on April 1. She can remain on COBRA for the nine months of her continuation period and her employer will subsidize her coverage through September 30 at 100% of the cost. Though Avery remains COBRA eligible through December 31, 2021, her remaining months of eligibility past September 30 are not subsidy eligible. Keep in mind, if Avery becomes eligible for other employer-sponsored coverage or Medicare before September 30, she loses her COBRA subsidy. If Avery does not alert her employer that she is no longer eligible for the subsidy because she qualifies for other coverage, she may be subject to the $250 fine. 

There are also new COBRA notice requirements under ARPA.

The ARPA outlines three specific notice requirements. It creates a requirement, first to the general election notice, second to individuals eligible under the “second chance,” and third to those individuals whose subsidies are ending. 

The DOL will provide an updated election model notice describing the subsidy. The employer or their COBRA plan administrator must timely notify eligible individuals who become entitled to elect COBRA during the subsidy period of the subsidy’s availability and the option to enroll in different coverage. This notice obligation can be met by amending existing notices or providing the required notice information in a separate document. ARPA also requires employers/COBRA administrators to give special notice to any individual still within their 18-month COBRA maximum period who has not elected, or who elected and later dropped, COBRA. This notice informs these individuals that they can elect subsidized coverage. Finally, between 45 days to 15 days before the end of the subsidy period (September 30), an expiration of subsidized coverage must be sent to eligible individuals as well.

ARPA adds several new benefits-related provisions to the COVID regulatory landscape. The COBRA amendments create several administrative and – especially for self-funded plans –financial burdens on GHPs. Affected parties should remain alert for additional guidance and notice information as it becomes available from the administration and Agencies. As a reminder, this Insight is for informational purposes only, and in no way constitutes legal, fiduciary, tax, or financial advice. Any information in this Insight is based on the most current legislation at the time it was written, and plan sponsors/employers are encouraged to seek advice from their legal counsel about ARPA and its provisions.


See our related special compliance alert, Significant Employee Benefits Changes Contained in the American Rescue Plan Act of 2021 (ARPA)

In case you missed it, view materials from our March 16 special compliance webinar: The Impact of the American Rescue Plan Act of 2021 (ARPA)


EPIC offers this material for general information only. EPIC does not intend this material to be, nor may any person receiving this information construe or rely on this material as, tax or legal advice. The matters addressed in this document and any related discussions or correspondence should be reviewed and discussed with legal counsel prior to acting or relying on these materials.


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Kevin Mathis

Compliance Manager – Atlanta, GA