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House Passes Stimulus Bill With COBRA Subsidy

January 28, 2009
A federal subsidy to help laid-off workers extend their employer health care passed the House on Wednesday, January 28, as part of the $819 billion economic stimulus bill. One item, however, has employers in an uproar.

That is a provision making employers responsible for extending health coverage permanently to former employees 55 or older or those who worked for the company for at least 10 years.

And unlike the measure to make it cheaper for workers to extend employer health care under the federal law known as COBRA, this provision would be permanent.

Lobbyists for employers are leading an intensifying campaign to remove the measure, which does not exist in the bill before the Senate, from any bill that eventually goes to President Barack Obama for signing.

“We recognize people are hurting and that people are laid off, but we don’t like the idea of continuing COBRA coverage to provide health care coverage to everyone,” said Mark Ugoretz, president of the ERISA Industry Committee.

Obama is hoping to sign the economic stimulus bill by Presidents Day, February 16.

With support in both chambers, it is likely that Congress will pass the provision for the federal government to pay 65 percent of the total cost of a laid-off worker’s health care premium. The law would apply to workers involuntarily terminated between September 1, 2008, and December 31, 2009.

That means employers could have as little as two weeks to make the necessary administrative changes to be able to comply with the law by the time health care coverage decisions take effect, as they normally do, at the beginning of each month.

The mechanics of complying with the law appear to be straightforward: An involuntarily terminated employee who chooses to extend coverage would pay 35 percent of the total cost of his or her health insurance; the employer would cover the rest. Employers would then deduct that amount from the payroll taxes the company wires to the Internal Revenue Service the following pay period.

“The good news is that companies immediately get their money back,” said Susan Relland, an attorney with Miller & Chevalier in Washington.

But she said employers “need to be paying attention now and start thinking about this now.”

Relland said employers could have 60 days to send a notice to eligible former employees of their option to extend their health insurance at a subsidized rate. Laid-off workers would then have 60 days to decide.

The provision that has angered employers calls for businesses to extend COBRA coverage to any employee who has been with a company at least 10 years or who is 55 or older. Those former employees would have access to an employer plan until they are eligible for Medicare at 65.

Employers would not have to pay for any part of the premium, but they worry that such a law would appeal only to former employees who have serious health concerns—and often high health care costs—that make it prohibitively expensive to find coverage on the individual market.

“You are basically building an engine for greater employee health costs,” Ugoretz said.

Supporters of the measure, introduced by Rep. Pete Stark, D-California, argued that it is a bridge to Medicare meant to help older workers, especially low-skilled workers in manufacturing, who may have a hard time quickly finding another job with health benefits.

Employer groups sent a letter of protest to congressional members last week. Those who signed the letter included the Corporate Health Care Coalition, ERISA Industry Committee, HR Policy Association, National Association of Manufacturers, National Association of Wholesaler-Distributors, National Retail Federation and U.S. Chamber of Commerce.

The Senate is expected to vote on the economic stimulus bill next week.

—Jeremy Smerd

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