Stimulus plan changes COBRA coverage

The American Recovery and Reinvestment Act of 2009, commonly known as the federal stimulus plan, is having an impact on all aspects of business - and personal health insurance coverage is not immune.

In addition to homeowner, business and tax incentives, the stimulus plan makes temporary changes to the Consolidated Omnibus Budget Reconciliation Act.

COBRA, passed in 1986, offers former employees and some of their family members the ability to continue health coverage at their own expense for up to a year and a half after leaving a company.

The COBRA provision in the stimulus package states that the federal government will pay 65 percent of COBRA health insurance premiums for up to nine months for employees who are laid off for financial reasons.

While the program is good news for unemployed workers, it could create headaches for employers, potentially increasing costs at a time when many companies are in the direst financial straits.

A helping hand

The basic concept of the incentive is simple: Any worker let go between Sept. 1, 2008, and Dec. 31, 2009, for reasons other than gross misconduct would need to pay 35 percent of COBRA health insurance premiums for nine months following termination.

Companies are required to pick up the remaining 65 percent of premiums for their terminated employees, and the government will reimburse the companies through tax credits.

While there was significant media attention given to the issue in the human resources industry, Employee Benefit Design LLC Account Manager Jessica Church said some companies may not have realized all the extra work that compliance would entail.

"The mechanics of administering the subsidy - and the fact that the bill was signed in mid-February, and the U.S. Department of Labor only had 30 days before they issued notices - left some employer groups not sure how to progress," Church said.

Companies are reimbursed for the extra cost through credits on their payroll taxes, meaning the earlier they get the necessary paperwork filed with the federal government the sooner they will get those credits, according to EBD Partner Dan Ruggeri.

"As employers are paying the premium to the insurance company, they would like to be reimbursed as quickly as possible to help their cash flow," he said. "So they (have) to set up the paperwork quickly to go about getting their credits to help them offset their payroll."

According to Andrea Croley, co-owner of Croley Insurance and Financial, reactions to the changes are mixed.

"For the most part, I don't know that the employers' response has been positive, because it creates a ton of work for their human resource departments," she said. "But the subsidy does make (employees) aware of COBRA coverage, which is a positive."

Marla Moody, vice president of budget and finance at Ozarks Technical Community College, said her office sent four people to a seminar about the COBRA changes.

She said the impact on her office has been minor - only one employee has qualified for the coverage, and the school is receiving reimbursement through tax credits.

"We've had really very little effect to us other than some administrative cost," Moody said. "It hasn't been crippling for us, mainly because we haven't had many employees lost that would be affected."

Retroactive responsibility

Employers also should be aware that even if employees declined COBRA coverage upon termination prior to February, employers were required to notify former employees about the changes by April 18 and allow them another chance to elect COBRA.

"Let's assume I was fired in September, and I was sent a COBRA notice back then and couldn't elect it," said Daniel Wooten, employment attorney with Neale & Newman. "My former employer was required to send me another notice within 60 days of Feb. 17, giving me another 60 days (for the subsidized COBRA benefit)."

And, Wooten added, employers could be in serious legal trouble if they didn't send out those notices.

"(Employees) might say they would have elected coverage if they'd received the new notice, so the medical treatment they needed would have been covered, and they could claim for damages against the administrator who didn't send out the notice," Wooten said. "Long story short, if an employer hasn't sent out these notices, they should contact legal counsel immediately."

Church added that in normal COBRA notice violations, employers can be fined more than $100 per day per affected employee, and employee claims could indeed be the offending employer's responsibility.

Wooten, however, reiterated that he is not aware of any companies that have failed to send out the proper paperwork.

"Hopefully by this time, employers or insurance plan administrators have already sent out the new notice," he said.