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COBRA Uncertainty Complicates Benefits Administration Issues for Employers

A subsidy extension is likely, but firms face choices. One survey finds that the percentage of laid-off employees opting for COBRA has doubled compared with the months immediately prior to enactment of the subsidy.

November 30, 2009
Related Topics: Medical Benefits Law, Benefit Design and Communication, Latest News
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Congress appears likely to extend a February law that subsidizes COBRA health care premiums for laid-off employees, allowing hundreds of thousands of beneficiaries to retain affordable coverage but creating new administrative headaches for employers.

Under that subsidy, embedded in the American Recovery and Reinvestment Act of 2009, the federal government pays 65 percent of COBRA premiums for COBRA-eligible employees who are involuntarily terminated between September 1, 2008, and December 31, 2009. The subsidy is available for nine months or until an enrollee is eligible for new group health insurance coverage.

At the time the COBRA subsidy legislation was passed, the Joint Committee on Taxation estimated that the subsidy would cost the federal government about $25 billion and benefit about 7 million jobless individuals and their families.

Statistics are not available on how many people have received the subsidy so far, though it clearly has had a significant effect on the COBRA opt-in rate: According to one survey, the percentage of laid-off employees opting for COBRA has doubled compared with the months immediately prior to enactment of the subsidy.

From March 1 through June 30, monthly enrollment rates for laid-off employees averaged 38 percent, according to a Hewitt Associates analysis of COBRA enrollment among 200 large employers.

“Some employers have seen some big spikes in enrollment,” said Scott Keyes, a senior consultant with Watson Wyatt Worldwide in Stamford, Connecticut.

The explanation for the leap in enrollment is simple: With the government picking up 65 percent of the tab for premiums—which often are $400 a month for individual coverage and $1,200 a month for family coverage—COBRA is much more affordable.

But for many beneficiaries, that subsidy has come to an end. The subsidy expired at the end of November for beneficiaries who have received the nine-month subsidy since it first became available, which generally was March 1.

As a result, in December billing statements some employers and plan administrators have asked beneficiaries to pay the full COBRA premium, instead of 35 percent.

“We have already set up a 100 percent billing for December,” said Kathy Dupree, benefits manager at Core Laboratories, a Houston-based company that provides services to petroleum companies.

But some plan administrators—especially those that send out payment booklets for COBRA beneficiaries—say that for now they are not sending out new booklets asking beneficiaries to pay the full premium.

“It is a calculated risk,” said Linda Anderson, benefit administration consultant in Watson Wyatt’s Chicago office.

Anderson said that if Congress does not extend the subsidy, the work involved in obtaining the money owed by beneficiaries who underpaid the premium would be less than issuing refund checks and adjusting future COBRA premiums as an offset to overpayments if Congress does extend the subsidy.

Benefits experts say it is likely Congress will extend the subsidy, most likely as part of a broader bill, though probably not until mid- to late December.

In fact, the chief reason Congress hasn’t acted is that members have been consumed with the effort to pass comprehensive health care reform legislation, observers say.

Less certain, though, is the shape of the extension legislation.

“There is little doubt that Congress will extend the subsidy. But no one knows exactly how the law will be extended,” said Andy Anderson, a partner with Morgan, Lewis & Bockius in Chicago

For example, one possible course of action would be for legislators to make the subsidy available for those who lose their jobs after December 31, 2009.

Another possible course of congressional action would be to extend the premium subsidy for current beneficiaries for several months and to make the subsidy available for those who lose their jobs during the first half of next year. Bills have been introduced in the Senate and the House that would do that, though no action has been taken on those measures.

Regardless of which approach Congress takes, employers and plan administrators will have more work ahead of them in communicating the changes to beneficiaries.

Still, assuming Congress extends the subsidy, the amount of work will be far less compared with earlier this year when the subsidy legislation was enacted. At that time employers, with no regulatory guidance, had to locate former employees who terminated employment as early as September 1, 2008, and initially declined COBRA and give them a second chance to enroll.

In addition, it took the Internal Revenue Service months to issue and complete guidance—such as defining situations that constituted involuntary employment termination—on subsidy-related issues.

 

COBRA Extension Bills
How legislators would extend the federal COBRA premium subsidy

  • COBRA beneficiaries would have an additional six months of premium subsidies.
  • Employees laid off from January 1, 2010, through June 30, 2010, would be eligible for 15 months of subsidized premiums
  • Premium subsidy would remain at 65 percent.

SENATE 
COBRA Subsidy Extension and Enhancement Act of 2009 (S. 2730)

  • COBRA beneficiaries would have an additional six months of premium subsidies.
  • Employees laid off from January 1, 2010, through June 30, 2010, would be eligible for 15 months of subsidized premiums.
  • Premium subsidy would be increased to 75 percent
 

 


Filed by Jerry Geisel of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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