Health and Welfare

Several Health Savings Bills Proposed

Senator Ben Sasse (R-NE) recently introduced two bills aimed at providing more flexibility for the use of health savings accounts (HSAs). Senate bill 2113 proposes to expand permissible distributions from an employee’s health flexible spending arrangement or health reimbursement arrangement to the employee’s HSA. Senate bill 2099 proposes to make HSAs more broadly available by removing the requirement that individuals be enrolled in a high deductible health plan. Further details of these proposals have not yet been made available.

A third bill has been introduced by Senator John Kennedy (R-LA). The Telehealth HSA Act would allow high deductible health plans to provide telehealth services before meeting the plan deductible without affecting HSA eligibility. Currently, employees may need to pay out of pocket for such services.

All three bills have been referred to the Senate Finance Committee for further consideration.

Supreme Court Leaves Affordable Care Act In Place

On June 17, 2021, the United States Supreme Court held that the plaintiffs did not have standing to pursue an action under the Patient Protection and Affordable Care Act (PPACA) because the individual mandate is unenforceable and, as such, “unenforceable language is insufficient to establish standing.” Regarding the states, the Supreme Court held that the “pocketbook injuries” cannot be traced to the government’s unlawful conduct. The Supreme Court failed to consider whether reducing the penalty to zero rendered the individual mandate unconstitutional and, in turn, if the individual mandate is unconstitutional, whether the individual mandate is severable from the remainder of the PPACA.

The lawsuit was narrowly centered around the individual mandate, which requires an individual to enroll in health coverage for the year or pay a penalty. In 2017, Congress passed the Tax Cuts and Jobs Act, which reduced the tax imposed by the individual mandate to zero effective January 1, 2019. Thereafter, two individuals and various states filed a lawsuit claiming the reduction of the tax to zero rendered the individual mandate unconstitutional. In particular, the entirety of the PPACA depends on the individual mandate and its effective removal rendered every other provision under the PPACA inoperable. The circuit court agreed with the plaintiffs and held that the individual mandate became an unconstitutional command when Congress reduced the amount to zero and, thus, it required the entirety of the PPACA to be struck down. The court of appeals held that the district court’s severability argument was incomplete and requested that the district court review the entirety of the PPACA to determine whether any of its provisions were affected by the reduction of the tax to zero beginning in 2017. In response, the petitioners, 16 states led by the State of California, filed a writ of certiorari to review the lower court’s decision.

Because the Supreme Court failed to review the constitutionality of the individual mandate and its effect on the PPACA, the PPACA continues to be in effect.  Nonetheless, it is unclear whether the current administration will increase the individual mandate penalty amount to prevent future attacks on the PPACA. If the penalty is increased, employers should expect their employees to enroll in either employer-sponsored, individual, or other health coverage.

IRS Provides Additional COBRA Premium Subsidy Guidance

On May 18, the IRS issued Notice 2021-31, which provides guidance affecting COBRA premium assistance pursuant to the American Rescue Plan Act of 2021 (ARPA). The notice includes 86 questions that clarify the application of the premium assistance to group health plans, employee eligibility, determination of the premium subsidy amount, and the advance payment or quarterly offset of taxes for employers.


Eligibility (Questions 1–20)

Notice 2021-31 clarifies that an assistance eligible individual (AEI) is an individual who experiences an original qualifying event of reduction in hours or involuntary termination of employment. If the AEI experiences an extension of COBRA continuation coverage period due to disability, a second qualifying event, or state mini-COBRA extension, he will be eligible for the subsidy to the extent that his additional period of coverage falls during the subsidy period. Finally, an AEI is no longer eligible for premium assistance if he is eligible for another group health plan or Medicare. An AEI is considered eligible for another group health plan if enrolled or eligible to enroll during the period April 1 to September 30, 2021.

Operationally, employers are not required to obtain an attestation or certification from the employee’s eligibility status to provide premium assistance. However, employers are required to maintain information used to make a determination, including any attestations or certification, if applicable.


Reduction in Hours (Questions 21–23)

An employee’s reduction in hours causes the qualified beneficiary to be eligible for premium assistance, regardless of whether the reduction in hours is voluntary or involuntary. In addition, furlough or strikes generally constitute reduction-in-hour events.


Involuntary Termination of Employment (Questions 24–34)

These questions and answers provide examples of what is and what is not considered an involuntary termination. In general, involuntary termination is the severance from employment due to the independent unilateral exercise of authority by an employer where the employee was otherwise willing to continue employment.

The following constitute involuntary termination.

  • Employer’s action to terminate employment because of the employee’s absence from work due to illness or disability
  • Termination for cause unless gross misconduct
  • Resignation due to material change in the geographic location of employment
  • Window termination (i.e., employees facing impending termination are offered a severance to terminate in a specified period of time)
  • Employee-initiated termination because of concerns about workplace safety if the circumstances amounted to constructive termination (i.e., the employer failed to provide reasonable accommodation)
  • Employee-initiated termination in response to reduction in hours
  • Failure of an employer to renew an employment contract

The following constitute voluntary termination.

  • Retirement
  • Employee-initiated termination due to concerns about workplace safety
  • Employee-initiated termination because child is unable to attend school or childcare facility because of COVID-19. However, if the leave is temporary and an employee-employer relationship exists, the qualifying event may be reduction in hours
  • Death of an employee


Coverage Eligible for Premium Assistance (Questions 35–42)

Premium assistance is available for group health plan coverage that includes medical, vision, or dental-only plans, health reimbursement arrangement (whether integrated or stand-alone), and retiree health plans (if available to active employees that are similarly situated). The premium assistance is not available for qualified small employer health reimbursement arrangements or health flexible spending arrangements.


Premium Assistance Period (Questions 43–46)

The premium assistance is available for the period April 1 to September 30, 2021, and the employee is eligible to receive premium assistance beginning the first period of coverage beginning on or after April 1, 2021. However, an employee is not required to elect the first period of coverage beginning on or after April 1, 2021, and may instead choose any prospective period of coverage within the available period (April 1 to September 30, 2021).


End of COBRA Premium Assistance Period (Questions 47–50)

COBRA coverage will continue for the AEI at the end of the subsidy period, but premiums must be timely paid for subsequent periods of coverage.


Extended Election Period (Questions 51–55)

An AEI will be able to have a second opportunity to elect coverage during the extended election period even if she had previously declined certain coverage while electing others (e.g., enrolling in continuation coverage for dental and vision but declining health coverage). Or if an employee had elected self-only continuation coverage, her spouse or dependent child, who would also qualify as an AEI, would also have a second election opportunity.


Extensions Under the Emergency Relief Notices (Questions 56–59)

Individuals must elect or decline retroactive coverage within 60 days of receipt of the election notice. Individuals will not have a second opportunity to elect coverage. The one-year extended period due to the pandemic continues to apply for premium payment outside the April 1 to September 30, 2021, period.


Payments to Insurers Under Federal COBRA (Question 60)

Insurers may be liable for excise taxes if they fail to treat an AEI as having made a full payment of the premium. The employer will be responsible for making a payment to the insurance carrier.


Comparable State Continuation Coverage (Questions 61–62)

State continuation programs will not fail to provide comparable coverage under ARPA if the programs provide different maximum periods of coverage, different qualifying events, or different qualified beneficiaries. However, a qualified beneficiary is eligible only if the individual meets the definition under COBRA.


Calculation of Premium Assistance (Questions 63–70)

The credit for the premium assistance is equal to the amount of COBRA premium costs not paid by the AEI plus any administrative costs otherwise allowed (generally, 102 percent). Notice 2021-31 clarifies that an amount subsidized by the employer would not be eligible for a credit.


Claiming the COBRA Premium Assistance Credit (Questions 71–86)

Regarding payment of the premium assistance to the plan sponsor, Notice 2021-31 clarifies that employers are eligible for the credit if subject to COBRA or self-insured and insurers are eligible for the credit for insured plans subject to mini-COBRA.

Notice 2021-31 also clarifies that the IRS and the Department of the Treasury are aware of additional issues concerning COBRA premium assistance that have not been addressed. They are continuing to consider the issues and may issue further subsequent guidance.

IRS Provides 2022 Amounts for HSAs and HRAs

IRS Revenue Procedure (Rev. Proc.) 2021-25 provides the 2022 inflation-adjusted amounts for health savings accounts (HSAs) and the maximum amount that may be made newly available for expected benefit health reimbursement arrangements (HRAs).

The HSA 2022 calendar year annual limitation on deductions under Internal Revenue Code (IRC) Sec. 223(b)(2) is $3,650 for an individual with self-only coverage under a high deductible health plan (HDHP) and $7,300 for an individual with family coverage under an HDHP.

In calendar year 2022, under IRC Sec. 223(c)(2)(A), an HDHP is a health plan with an annual deductible that is not less than $1,400 for self-only coverage or $2,800 for family coverage. The annual out-of-pocket expenses—deductibles, co-payments, and other amounts (but not premiums)—cannot exceed $7,050 for self-only coverage or $14,100 for family coverage.

Under Pension Excise Tax Regulation Sec. 54.9831-1(c)(3)(vii), the maximum amount that may be made newly available for the plan year for an excepted benefit HRA is $1,800 for plan years beginning in 2022.

IRS Notice Addresses Taxation of Dependent Care Benefits

On May 10, 2021, the IRS released Notice 2021-26, which addresses the taxation of dependent care benefits available during taxable years ending in 2021 or 2022 because of a carryover or extended claims period enacted under the Consolidated Appropriations Act, 2021 (CAA).  This notice clarifies that amounts that would have been excluded in the prior tax year remain excludable from income in the subsequent tax year. In particular, Notice 2021-26 provides three examples to illustrate when amounts carried over or available under an extended claims period are excludable from income, as follows.

Example 1: Calendar Plan Year

For the 2020 plan year, the employee elects to contribute $5,000, but incurs no dependent care expenses. The employee is permitted to carry over $5,000 into the 2021 plan year. For the 2021 plan year, the employee elects to contribute $10,500 to the plan. The employee is reimbursed for $15,500 in expenses during the 2021 plan year. The entire amount, $15,500, is excludable from income.

Example 2: Noncalendar Plan Year (July 1 to June 30)

For the 2020 plan year, the employee elects to contribute $5,000, but incurs no dependent care expenses. The employee is permitted to carry over $5,000 into the 2021 plan year. For the 2021 plan year, the employee elects to contribute $10,500 to the plan. The employee does not incur any dependent care expenses during the 2021 plan year. Beginning on January 1, 2022, the employee has $15,500 in available benefits. For the 2022 tax year, only $10,000 is excludable from income because $5,000 is the maximum carryover and $5,000 is the permitted contribution for the 2022 tax year. The remaining amount, if reimbursed is taxable. The example also includes another piece detailing the two-and-a-half-month grace period.

Example 3: Noncalendar Plan Year (July 1 to June 30)

For the 2020 plan year, the employee does not elect to participate or contribute in the dependent care plan. For the 2021 plan year, the employee elects to contribute $10,500 to the plan. The employee incurs $5,000 in dependent care expenses for the period July 1, 2021, to December 31, 2021. The $5,000 incurred is excludable from income. Beginning January 1, 2022, the employee has $5,500 available, but only $5,000 is excludable from income because $5,000 is the permitted contribution for the 2022 tax year. The remaining $500, if reimbursed, is taxable. The example also includes another piece detailing an additional employee contribution and incurred expenses.

Finally, this notice provides that an amount carried over or available under the extended claims period is not taken into account when determining the applicable limit.

Notice 2021-26 will be published in the Internal Revenue Bulletin 2021-21 on May 24, 2021.

IRS Guidance Affects Employment Taxes and COBRA Premium Subsidy

The IRS issued Notice 2021-24, which provides guidance following the passage of the American Rescue Plan of 2021 (ARPA). The Notice provides information regarding the applicable penalty relief available to an employer under the ARPA for failing to pay employment taxes in anticipation of a credit for COBRA premium assistance paid to assistance-eligible individuals. Notice 2021-24 provides that the credit applies against the employer Medicare taxes for each calendar quarter and is reported on the employer’s return, reporting liability for FICA tax or RRTA tax, as applicable. For most employers, the Form 941 would be used to file quarterly employment taxes and the Form 7200, Advance Payment of Employer Credits Due to COVID-19, would be used to obtain an advance payment of the refundable credit. An employer will not be subject to a penalty for failing to pay quarterly employment taxes if

  • the employer is the person to whom premiums are payable;
  • the amount of employment taxes that is not timely paid is less than or equal to the amount of the employer’s anticipated credits for the quarter; and
  • the employer did not seek an advance credit by filing the Form 7200.

Drafts of the Form 941-X Instructions and Form 7200 have been released by the IRS but will not be finalized until the Office of Management and Budget has reviewed and approved the forms. Usually, once approved, the final forms contain updated instructions and information. As released, the draft Form 7200 contains a line item to include the amount paid by the employer in COBRA premium subsidies. The draft Form 941-X contains outdated instructions applicable to COBRA premium assistance payments between September 2008 and May 2010. The draft Form 941-X section regarding COBRA premium assistance payments will be updated in July 2021 to reflect changes under the ARPA.

DOL Withdraws Independent Contractor Rule

The Department of Labor (DOL) Wage and Hour Division is withdrawing the independent contractor rule that was scheduled to take effect on May 7, 2021. The rule had previously been delayed from its original effective date of March 7, 2021. The withdrawal of the rule is scheduled to be published in the Federal Register May 6, 2021.

The rule was published January 7, 2021, in the Federal Register. Its intended purpose, as described by the DOL at the time, was to clarify distinctions between employee and independent contractor status under the Fair Labor Standards Act (FLSA).

After having delayed the effective date, on March 12, 2021, the DOL published a proposal to withdraw the rule and requested comment. The DOL states it received over 1,000 comments supporting the withdrawal and numerous comments opposing the withdrawal. Upon review of the comments, the DOL has now finalized the withdrawal of the rule, stating that “the Rule is inconsistent with the FLSA’s text and purpose, and would have a confusing and disruptive effect on workers and businesses alike due to its departure from longstanding judicial precedent.”

DOL Issues Additional COBRA Premium Assistance Guidance Under ARPA

In response to the requirements under the American Rescue Plan Act of 2021 (ARPA) to provide model notices and additional guidance in relation to COBRA premium assistance, the Department of Labor has issued model notices and frequently asked questions (FAQs). The FAQs confirm the following.

  • Premium assistance will apply to all group health plans subject to COBRA, except health flexible spending arrangements (including major medical, dental, and vision).
  • Premium assistance will also be available for group health insurance that is required by state mini-COBRA laws.
  • Assistance-eligible individuals will not need to pay administrative fees that they would normally be charged.
  • Assistance-eligible individuals must elect COBRA within 60 days of receiving their notice of premium assistance. This deadline is not extended by the guidance based on the Joint Notice and the EBSA Disaster Relief Notice 2021-01.
  • Individuals who are eligible for COBRA but have not elected coverage can choose to start their coverage as of April 1, 2021, and do not have to elect any coverage retroactively before that date.

Washington Pulse: American Rescue Plan Act Provides Coronavirus Relief

President Biden has signed legislation that funds another round of assistance as the nation copes with the health and economic effects of the coronavirus pandemic. Several previous bills in 2020 provided direct cash benefits to Americans, created a small business lending program to help employers retain employees, and provided enhanced access to tax-favored retirement savings.

This latest round of relief, a $1.9 trillion stimulus bill known as the American Rescue Plan Act of 2021 (ARPA), contains a third round of direct payments to Americans, funding to help hard-hit industries, and many other provisions—including some that will affect health plans and defined benefit plans.

Health Plan Relief

ARPA’s health-related provisions are meant to help individuals who have suffered a job loss or a reduction of hours to maintain their health insurance coverage. The following text summarizes the most important health plan-related provisions.

COBRA Continuation Coverage Premium Assistance

ARPA provides premium assistance for COBRA continuation coverage. This type of coverage allows eligible individuals who lose their health benefits to continue participating in their group health plan for a limited period of time. The premium assistance is designed to help both employees and employers. For example, premium assistance can help former employees keep their employer health plan coverage at a critical time. COBRA coverage can be prohibitively expensive—individuals may have to pay up to 102 percent of the cost to the plan—which discourages enrollment in many circumstances. If the premium is subsidized, employees are more likely to opt for COBRA coverage. When faced with a serious medical event, individuals and families who have this coverage can avoid potentially catastrophic financial consequences.

Premium reimbursement can help employers by ensuring increased COBRA coverage enrollment. Having a large number of COBRA enrollees can help employers spread costs over a greater number of healthy individuals who will pay premiums without having significant claims (as opposed to having only individuals with substantial medical costs enrolled in COBRA coverage).

Premium Assistance Basics

ARPA effectively provides free COBRA coverage by creating a subsidy that pays 100 percent of the COBRA premiums. Normally, the individual who is enrolled in COBRA coverage would need to pay these premiums. ARPA authorizes payment for premiums arising from COBRA coverage during the period beginning on April 1, 2021, and ending on September 30, 2021. This premium assistance is available only for certain categories of individuals who are enrolled in COBRA coverage during this period. These “assistance eligible individuals” include the following persons:

  • Employees who are eligible for COBRA coverage because of involuntary termination of employment for reasons other than gross misconduct. (A key feature of the relief is that employees who voluntarily terminate are not eligible for the subsidy.)
  • Employees who are eligible for COBRA coverage because of a reduction in hours that causes them to lose eligibility for their employer’s health plan.
  • Dependents of the employees who have lost eligibility for the reasons indicated above.

COBRA-eligible individuals who meet these criteria and who either 1) have not yet enrolled in COBRA coverage, or 2) had already enrolled in COBRA coverage but discontinued their coverage, have an additional 60 days to elect COBRA coverage and to take advantage of the subsidy. The 60-day enrollment period will begin on the date that the individual receives an ARPA-required notice that explains both the subsidy itself and the individual’s extended opportunity to elect COBRA continuation coverage.

The subsidy is “paid” through a tax credit that is provided to the employer sponsoring the health plan or to the insurer providing the coverage when an individual enrolls in COBRA coverage.

ARPA also permits employers—at their discretion—to allow individuals who are eligible for the subsidy to enroll in different coverage also offered by the employer, as long as the other coverage is also offered to other similarly situated active employees and

  • does not exceed the premium cost of the health coverage initially enrolled in,
  • does not provide excepted benefits only, and
  • is not a qualified small employer health reimbursement arrangement (QSEHRA) or a flexible spending arrangement (FSA).

Premium Assistance Notification

Because awareness of the subsidy is critical to increasing COBRA enrollment, employers must communicate the availability of premium assistance and the option to enroll in different coverage (if allowed). Individuals must receive the additional notification within 60 days of becoming eligible. Employers may provide the disclosures by amending existing notices or by including a separate document with the COBRA election notice.

Within 30 days following the bill’s enactment, the Departments of Labor (DOL), Treasury, and Health and Human Services must issue model notice language in order to help employers comply with the COBRA premium assistance notification requirements. Specifically, the model notices must include

  • the forms necessary to establish eligibility for premium assistance;
  • the plan administrator’s or other party’s contact information—including name, address, and telephone number;
  • a description of the extended election period provided;
  • a description of the qualified beneficiary’s penalty for failure to notify the plan if eligibility for premium assistance ceases;
  • a description of the qualified beneficiary’s right to a reduced premium and any conditions on entitlement to the reduced premium; and
  • a description of the qualified beneficiary’s option to enroll in different coverage (if the employer permits).

Expiration of Premium Assistance

Eligible individuals will generally receive subsidized premiums for coverage beginning on April 1, 2021, and ending on September 30, 2021. Individuals will become ineligible for premium assistance during that period if they

  • reach the maximum period for COBRA coverage, or
  • become eligible to be covered under another group health plan.

For individuals who reach the maximum period of COBRA coverage, a notice must be provided 15 to 45 days before the expiration of premium assistance. The notice must prominently identify the expiration date. To help employers comply with the requirement, the DOL must produce model notices to communicate the expiration of premium assistance 45 days following ARPA’s enactment.

If, during the period of COBRA coverage, individuals receiving the subsidy become eligible for coverage under another health plan, they must notify the plan that they are no longer eligible for premium assistance. Failure to notify the plan will result in a $250 penalty. If an individual intentionally fails to notify the plan, the penalty could be up to 110 percent of the premium assistance amount. The penalty does not apply if there is a reasonable cause for the failure to notify.

Tax Provisions for Premium Assistance

The premium assistance amount will not be included in the individual’s gross income for federal tax purposes.

Defined Benefit Plan Relief

ARPA’s retirement-related provisions are designed to provide relief to single-employer and multiemployer defined benefit (DB) plans. Following is a high-level summary of these provisions.

Amortization Relief for Single-Employer DB Plans

ARPA treat a single-employer DB plan as having no funding shortfall bases, and no shortfall installments from the bases, in prior years and spreads out funding shortfall installments to 15 years. These changes have the effect of reducing an employer’s minimum required contributions.

Extension of Pension Funding Stabilization Percentages for Single-Employer DB Plans

The three segment rates used for the applicable interest rates are provided with minimum and maximum percentages, effectively stabilizing the rates to be applied in future years. ARPA provides funding relief in a time of lower interest rates by setting the minimum percentage at a five percent “floor.” A plan can elect not to have this provision apply in plan years before 2022.

Multiemployer DB Plan Relief

ARPA provides relief for certain underfunded multiemployer plans for 2020 and 2021 plan years—including retention of the preceding plan year’s plan status (endangered, critical, etc.), extension of the plan’s funding improvement period or rehabilitation period (whichever is applicable) by five years, and use of a 30-year amortization base when amortizing investment losses.

Special Assistance Program for Multiemployer Plans at the Pension Benefit Guaranty Corporation (PBGC)

A special fund will be created for struggling multiemployer plans that are most vulnerable. The fund will provide financial assistance in the form of a lump-sum payment sufficient to provide benefits through 2051. Plans receiving this assistance must comply with additional conditions, including reinstating previously suspended benefits. For plan years beginning after December 31, 2030, multiemployer plan premiums to the PBGC will increase to $52 per participant.

Community Newspaper DB Plans

Certain community newspapers with DB plans can elect to take advantage of more favorable interest rates and amortization periods. They can also avoid some at-risk DB plan requirements.

Next Steps

Employers with defined benefit plans should start reviewing the new rules so they can take full advantage of the relief provided by the American Rescue Plan Act. Single-employer DB plans may want to consider whether to opt into or out of the relief. The stabilization percentages will automatically apply for 2020 if employers don’t opt out.

Employers with health plans should

  • work with COBRA service providers (if applicable) to meet the new COBRA notification requirements,
  • understand how premium amounts are reimbursed through the payroll tax credit process, and
  • coordinate with payroll providers and tax professionals to help ensure proper documentation and tax payments.

Ascensus will closely monitor all future ARPA-related guidance. Visit for the latest updates.


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