The mechanics of the law are straightforward. The challenge for employers will be to comply with the law by the time the COBRA provisions take effect, which is the beginning of the first coverage month after the bill’s approval. That is March 1 for many employers.
The departments of Labor, Treasury, and Health and Human Services are expected to issue guidelines and help employers comply with the law. The following is a basic overview, based on readings of the law and analysis from benefits experts, of what employers need to know to comply with the legislation.
The American Recovery and Reinvestment Act of 2009
The American Recovery and Reinvestment Act of 2009, which was signed into law by President Barack Obama on Tuesday, February 17, provides employees laid off since September 1, 2008, through the end of 2009 with as much as a nine-month subsidy to help them continue receiving their employer’s health benefits. These former employees are eligible to pay 35 percent of the cost of the monthly premium as opposed to the standard cost of 102 percent if their gross income is less than $125,000 for individuals or less than $250,000 for couples. The government subsidy will cover the remaining 65 percent of the cost of the premium.
For individuals who make between $125,000 and $145,000 and couples making between $250,000 and $290,000, the subsidies will be provided on a sliding scale. The government will subsidize the upfront cost and then recoup the money through tax returns.
The subsidy must be made available to all qualifying individuals, including those who have already declined COBRA continuity. And employers must allow workers to switch to lower-cost health plans if they are available.
The subsidy, expected to cost the government nearly $25 billion and provide nearly 7 million unemployed workers and their families with health insurance, ends after nine months or when an individual becomes eligible for other group medical coverage. When that happens, members are obligated to notify the health plan that they’ve found other coverage. If they don’t, they will be required to pay 110 percent of the premium beginning at the time when they first became eligible for other group medical coverage.
How it works: the employment tax offset
Employees will pay 35 percent of the cost of their premium. Employers with self-funded health plans will pay the rest and then deduct their expense from the amount normally paid toward the federal government in payroll taxes.
With the average cost of a family plan in 2008 totaling $12,680, according to the Kaiser Family Foundation’s survey on health care costs, employers will pay an average of $8,242 per family plan before deducting that expense from payroll taxes.
Employers must send notices to eligible employees notifying them of their rights to elect COBRA under the new subsidy rules.
While employers are readying administrative systems to comply with the new requirements, employees may pay the full amount and then use the overpayment as a credit toward future premiums or reimburse employees that amount.
Other features: health care tax credit
Some workers eligible for the health care tax credit, which was created in 2002 to help certain workers pay for health care, will see their credit increase to 80 percent of the cost of health coverage from 65 percent.
Employers outsourcing their COBRA administration should rely on their vendor for advice on how to comply with the new law, brokers and lawyers say.