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From COBRA to GINA, Challenges Abound as New Year Draws Near

December 15, 2009
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For many benefit managers, the economic downturn resulted in a domino effect of events this year.

Perhaps the single biggest benefits event came early, when Congress enacted the American Recovery and Reinvestment Act of 2009, which provided a 65 percent subsidy to laid-off workers who purchased COBRA coverage from their employers.

Then in March, ongoing financial market woes threatened the solvency of defined-benefit plans while deterring many employees from continuing to invest in their 401(k) plans.

Implementation of laws requiring mental health benefits parity and precluding employers from asking questions related to family medical history on health risk assessments added to benefit managers’ challenges during 2009.

“The thing that made the COBRA subsidy so impactful as a benefits event was, first of all, it happened really fast,” said Mike Vittoria, director of human resources at Sperian Protection Inc. in Smithfield, Rhode Island. “It was something that came out of nowhere. It’s not like health reform, where you can see it marching toward you. Second, it was retroactive; we had to go back to people who were laid off at the last quarter of 2008. Third, it was rolled out with almost no guidance.”

Moreover, many self-insured employers still were awaiting figures from their plan administrators on the cost of this coverage extension, which many benefit managers and consultants predict will exceed that of the premiums collected.

“Because the subsidy was so great, the takeup rate among employees was much higher than what you normally see, and the cost impact to employers hasn’t been fully felt yet,” Vittoria noted.

Scott Clark, risk and benefits officer at Miami-Dade County Public Schools, also said “the COBRA subsidy was significant because of the fact that it hit us right at a time when we were facing significant budget shortfalls.”

Because self-insured employers must apply for the subsidy and wait to receive federal reimbursement, they must front all medical costs incurred by former employees who signed up for COBRA coverage, Clark said.

In March, there was a flurry of employer activity to provide financial education to employees, said Bob Queyrouze, coordinator of compensation and benefits at the Federal Reserve Bank of Dallas.

“There’s been a renewed interest in retirement planning and phased retirement,” Queyrouze said. In some cases, “baby boomers have put retirement on hold.”

But defined-contribution plan members were not the only ones hit by the market downturn, said Raymond Brusca, vice president of benefits at Black & Decker Corp. in Towson, Maryland.

“For employers offering defined-benefit plans, the drop in the market was probably the last nail in the coffin,” said Brusca, who added that he expects an increase in defined-benefit plan freezes as a result.

“It heightens the necessity of [automatic] enrollment and to encourage plan members to adopt a sound retirement strategy in terms of the investment elections they make,” Brusca said. Unfortunately, “we still see people making conservative, long-term investments. But that’s not a good idea for younger employees.”

He also saw employees scale back their 401(k) contributions after the company instituted a 5 percent across-the-board pay freeze. “If pay was cut 5 percent and their 401(k) contribution was 6 percent, they dropped it to 1 percent,” he said.

Fortunately, 2009 also saw the emergence of “behavioral economics” as a benefit communication and education strategy, which helped some employers combat this tendency among employers.

In fact, throughout the market downturn, employees at Columbus, Ohio-based Nationwide Mutual Insurance Co. increased their 401(k) contributions, largely as a result of automatic enrollment and automatic escalation, which occurred even though many of them did not receive raises this year, said Jack Towarnicky, associate vice president of benefits planning.

Implementation of mental health parity proved challenging for many benefit managers at companies that did not provide coverage for mental health care at the same level as medical care.

Then there was the Genetic Information Nondiscrimination Act of 2008, which “snuck up on everyone,” Vittoria said. “It exploded in the one area where employers have been trying to make inroads with employees, and that’s the whole wellness area.”

“Every employer that does [a health reimbursement arrangement] asks some sort of genetic question: Do you have a family history of heart disease, for example. And, almost every time, an employer offers some form of financial incentive to encourage employees to complete it. And they all became GINA violations in December,” Vittoria said.

Amid COBRA, the market downturn, mental health parity and GINA implementation, benefits managers in 2009 also faced the H1N1 pandemic.

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

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