For workers all across the country, 2008 was a rough year. According to the U.S. Bureau of Labor Statistics, the national unemployment rate rose 1.2 percent between 2007 and 2008, from 4.6 percent to 5.8 percent. In Florida, the numbers were even worse. The jobless rate rose 2.1 percent over 12 months, from 4.1 percent in 2007 to 6.2 percent in 2008.
The Consolidated Omnibus Budget Reconciliation Act (COBRA) was signed in 1985 in an effort to provide extended health benefits to workers who were involuntarily laid off. The problem has always been that the rates to keep the insurance benefits were so high that many people who lost their jobs simply couldn’t afford to enroll in COBRA.
On Feb. 17, 2009, President Barack Obama signed the American Recovery and Re-investment Act, which includes provisions to subsidize COBRA premiums, making them more affordable for workers who have lost their jobs. The law went into effect on March 1, 2009.
“Typically, employers are allowed to charge up to 2 percent above the full premium cost in order to continue coverage under the plan,” says Jim Repp, vice president of sales at AvMed Health Plans. “In other words, the COBRA participant would then have to pay 102 percent of the applicable premium to cover the plan’s cost to provide benefits.”
Smart Business asked Repp how the stimulus plan will help people who suddenly find themselves unemployed keep their health benefits and what the employer’s role is in complying with the new provisions.
How has the stimulus package changed the way we will pay for COBRA?
The stimulus plan creates a subsidy by which the federal government will pay 65 percent of a participant’s cost for continuation coverage. The subsidy remains in effect for a maximum of nine months and is substantial, especially when you consider that it’s not uncommon for family premiums to be close to $1,000 a month. However, I should stress that the subsidy is only available to workers who were involuntarily terminated. Those who left voluntarily or were terminated for gross misconduct are not eligible.
The new requirements are retroactive to Sept. 1, 2008. Even if employees laid off last September waived coverage at the time, they can now go back and opt to take elect coverage, effective March 1, 2009.
It is important to note that the subsidy ends after nine months or when the participant becomes eligible for coverage from another employer or through Medicare, whichever occurs first. All other requirements of continuation coverage continue to apply.
Has the subsidy created any burdens for the administrative staffs of employers?
The new requirements have created a substantial amount of administrative work for employers because they must now go back to Sept. 1, 2008, to identify terminated employees and ensure that the proper notices have been sent. In addition, there are strict guidelines concerning the required elements of the revised notification.
Employers also have to make sure the subsidy is funded correctly. A COBRA participant is responsible for 35 percent of the premium while the employer is responsible for funding the remaining 65 percent of the cost of the coverage. In most cases, the employer is required to pay the subsidy and then will be reimbursed by the federal government through a tax credit.
If third party administrators are being used, employers should be careful when delegating the administrative portion of these requirements. I would certainly recommend communication and some degree of oversight since the ultimate responsibility for compliance lies with the employer.
Are there any potential pitfalls employers should look out for?
In general, the required notices must be provided to anyone who becomes eligible for continuation coverage regardless of whether the person qualifies for the premium subsidy. Therefore, employers need to be sure that they can properly identify all terminated employees, including those who are eligible for the subsidy. This means that they must be able to distinguish employees who were involuntarily terminated from those who were terminated voluntarily or for gross misconduct.
There are also income limits on eligibility for the subsidy. The subsidy is phased out for an individual with Adjusted Gross Income (AGI) between $125,000 and $145,000, while an individual whose AGI exceeds $145,000 will not be eligible for the subsidy. For joint income employees, the subsidy is phased out if joint AGI is between $250,000 and $290,000, while the individual will not be eligible for the subsidy at all if joint AGI exceeds $290,000.
What happens if the economy doesn’t rebound by the end of the year?
The bill was written to apply to those employees who are involuntarily terminated between Sept. 1, 2008 and Dec. 31, 2009. In this economic environment, it is possible that the subsidy would be extended, but if not, the subsidy would expire and the participants would again be responsible for the full amount of the premium.
I should mention that the stimulus plan applies not only to federal continuation coverage but also to ‘comparable’ state continuation coverage, like we have in Florida.
JIM REPP is the vice president of sales at AvMed Health Plans. Reach him at Jim.Repp@avmed.org.