On Thursday, March 11, President Biden signed the American Rescue Plan Act of 2021, a $1.9 trillion COVID relief and stimulus bill. The new law includes two important employee benefit provisions.
First, the law allows workers who have been involuntarily terminated or experienced a reduction in hours to continue their employer health insurance coverage under COBRA with a 100 percent subsidy. The subsidy is effective April 1, 2021 and continues through September 30, 2021. The federal government will reimburse the employer or insurer (for fully insured plans) for the cost of the subsidy, including COBRA administrative fees. Passage of a subsidy has been a WEX public policy priority since the outbreak of the pandemic last year. It will provide much needed financial support to impacted Americans and their families at a time when having adequate health insurance is more important than ever.
The bill also provides enhanced Affordable Care Act (ACA) subsidies for similarly impacted workers, giving them a choice between COBRA and individual coverage purchased on an ACA exchange. While premiums will be subsidized no matter which choice an individual makes, the average ACA plan deductible is more than three times higher than the average deductible in an employer plan. Moreover, nearly three quarters of ACA plans have a restrictive provider network. So, given the choice, we would expect that more people would choose to enroll in COBRA.
Dependent care FSA limit
Another way the bill benefits workers is through a temporary increase, for 2021, in the maximum amount that can be contributed to a dependent care flexible spending account from $5,000 to $10,500. The $5,000 limit was established in 1986 and has not increased since. This relief is particularly welcome at a time when American households are struggling with the impact of the pandemic-induced recession, because the tax savings reduce the cost of childcare. We believe that a sensible next step is to make the increase permanent (the 1986 limit would now need to be nearly $12,000 to keep up with inflation), and we will be advocating for that as we move through the year.
We applaud Congress and the President for enacting these important provisions that will benefit millions of Americans at a time of health and economic challenge, and we will be working hard to enable employers, brokers, consultants, and administrators to implement these changes to deliver these benefits.