There’s a saying about March—“It comes in like a lion and goes out like a lamb.”
We might submit that the whole month has been pretty “lion” for HR and benefits teams this year. The American Rescue Plan Act (ARPA) has created some exciting opportunities for individuals without health plan coverage to take advantage of a short-term 100% COBRA subsidy.
This is welcome news for the hundreds of thousands of workers who were involuntarily terminated or saw a reduction in hours event since October 2019. The need for health plan coverage is at an all-time high, as we’ve seen record enrollment for the special ACA enrollment period since it reopened on Feb. 15. HHS announced last week that the enrollment period for ACA will remain open through Aug. 15, 2021.
While we’ve all been focused on sorting through subsidy eligibility rules, model notices and the like, there have also been some key updates to consumer-directed healthcare (CDH) accounts.
ARPA increases the dependent care FSA limit for calendar year 2021 to $10,500 (up from $5,000) per family. As with the standard rules, the limit is reduced to half of that amount, or $5,250 (up from $2,500), for married individuals filing separately. At this time, the increased maximum contribution amount for DCFSAs is designated only for 2021; however, we think it would be hard for the IRS or Congress to reduce it thereafter, so the odds of that maximum amount remaining in place for some time might be high. That family maximum amount equates to about $220/week, which is more in line with current child care costs and may allow parents to set aside their tax-free dependent care funds and save in the long run. Again, this is an allowable amount, not a mandate; so, employers who want to take advantage of this provision would need to make a plan amendment and communicate the new maximum to their population.
All of these legislative items are steps in the right direction toward continuing to help employees build financial wellness through their tax-advantaged savings and spending accounts. The 2020 PwC Employee Financial Wellness Survey showed that more than a third of employees could not absorb a $1,000 emergency expense. That survey also revealed that about 20% of employees polled (across all generations) would consider using their retirement funds to pay medical bills. Deploying FSAs, HSAs or HRAs as part of your benefits strategy can be a big part of providing that financial safety net for health-related emergencies and unexpected health expenses.
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