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First Deadline for New COBRA Rules Highlights Issues

April 17, 2009
Related Topics: Downsizing, Benefit Design and Communication, Medical Benefits Law, Latest News
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The April 17 deadline to send letters to laid-off employees telling them of their right to receive subsidized health coverage has less to do with communicating information than it does with complying with a new government regulation.

Most employers are still trying to figure out how to administer the subsidy, which was enacted as part of the stimulus bill and pays for 65 percent of a person’s health care costs for nine months.

The reality is that the process is a bit of a byzantine process,” said Jay Savan, senior consultant at Towers Perrin in St. Louis. “The compliance is straightforward, but the administration is problematic.”

While most employers have outsourced the administration to benefit and payroll vendors, they must still work out problems specific to their company’s policies.

For example, the law has complicated matters for companies that previously provided a subsidy to help workers afford COBRA coverage.

As a result, some of those companies have ended their own generous subsidy, benefits managers say.

The subsidy has also struck employers as unfair to workers still paying for coverage, said Matt Isbel, a consultant in Kalamazoo, Michigan.

“Many employers have indicated they now have active employees who are paying more for their group health insurance out of their checks than ex-employees are paying with the subsidy,” Isbel wrote in an e-mail.

Complying with the law has been even more difficult for multi-employer plans whose health benefits are managed by a single and separate entity, said Kaye Pestaina, vice president of national health compliance at consultancy Segal & Co. in Washington.

Even though these employers don’t run the plan, they must pay the upfront cost of an ex-employee’s health care and then figure out how to get reimbursed.

“They need to figure out a way for employers to front the money and get paid back,” Pestaina said.

Though the federal government has resolved some of the biggest issues, such as defining which former employees are eligible for the subsidy, administering the changes is proving to be a headache at a time when companies are cutting back on HR personnel, employers say.

—Jeremy Smerd

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