Taming the COBRA “Lion”
The old adage, “March comes in like a lion and goes out like a lamb” is proving to be too very true for companies across the country. Why? Well, effective March 1st, the American Recovery and Reinvestment Act of 2009 (ARRA) President Obama’s Stimulus package, goes into effect and includes major and significant changes to the current COBRA continuation coverage. This “Lion” is causing business owners and HR departments to scramble to understand and comply with the massive changes in a very short period of time.
As a reminder, COBRA (Consolidated Omnibus Budget Reconciliation Act) is a federal regulation that is applicable to employers of 20 or more employees who offer a regular group medical plan. If you do not have 20 or more employees or offer a group medical plan, then this new coverage is not applicable to you.
The reasoning is basic, the economy has been in a tail-spin and the President wants to make sure that the millions of individuals that have lost their jobs due to this economic crisis have the resources to continue their medical coverage. All this and still letting the employer know that they will be entitled to a subsidy to provide this coverage to their terminated employee.
The main gist of the ARRA is:
- Provide a 65% federal subsidy of COBRA premiums to eligible individuals for a maximum period of 9 months;
- Requires employers to pay 65% of the insurance premium upfront and then deduct the cost from their payroll taxes (Social Security and Medicare) and the terminated worker paying the remaining 35% (this occurs with the regular federal reporting of the 941 Tax form);
- Allows employees who became unemployed back to 9/1/2008 (and who originally rejected COBRA) to reconsider and sign up for COBRA benefits.
What does this mean to the business owner and what must they do to be in compliance?
These new provisions to COBRA require employers and benefit administrators (i.e., HR Departments, Payroll, Benefits, etc.) to take prompt action to implement the new procedures. Some of the decisions and procedures to be made include:
- Identifying eligible employees (and their covered dependents/spouses) who were covered by the group health plan and whose employment was involuntarily terminated since 9/1/2008, including their last known addresses.
- Identify which terminated employees are currently receiving COBRA coverage and which are entitled to the special enrollment period. According to the DOL, Plan administrators must provide notice about the premium reduction to individuals who have a COBRA qualifying event during the period from September 1, 2008 through December 31, 2009. Plan administrators may provide notices separately or along with notices they provide following a COBRA qualifying event. This notice must go to all individuals, whether they have COBRA coverage or not, who had a qualifying event from September 1, 2008 through December 31, 2009.
Individuals eligible for the special COBRA election period described above also must receive a notice informing them of this opportunity. This notice must be provided within 60 days following February 17, 2009.
- Determine the correct premium subsidy that applies to those unemployed workers who are not being required to pay the full COBRA premium.
- Develop a process for applying the excess of any COBRA premiums above 35% received from a COBRA recipient for March and April 2009 to future premiums or refund the excess.
- Adjust administrative procedures to reflect the maximum 9 months of available coverage.
- Develop and provide the notices required by the ARRA. Where can wording be found?
We at EffortlessHR are following this issue very carefully. We are actively assembling Forms, How To’s, and providing alerts to our clients and prospective clients. We are also placing the new regulations on the Law section of the Effortless HR Software program. In addition, the Department of Labor and the IRS have extensive information available regarding this new law. Their contact information is
IRS http://www.irs.gov and Department of Labor: http://www.dol.gov/ebsa/COBRA.html. If you are using a third party COBRA administrator, they will also be able to assist you.
We would recommend that employers not react in a way that could jeopardize existing employees when reviewing the benefits currently provided. You have offered benefits as a retention tool and that same reason to continue benefits remains.
The important thing to remember is to be organized, follow the guidelines, don’t be afraid to ask questions, and hopefully you will be able to exit March as a lamb.
Lola Kakes, CEO EffortlessHR
Eric David says
Great article! Here are 2 questions with concrete examples:
1. An employee was terminated prior to 9/1/08, but as part of his termination/severance agreement, his former employer continued to pay his health care premiums through 9/30/08, at which time he was eligible for COBRA but declined it and found less expensive coverage privately.
The employee was terminated prior to the 9/1/08-12/31/09 window, but his benefits continued into that window of time and he became eligible for COBRA starting on 10/1/08. Do these new rules and regulations apply to him? Is he eligible to reconsider and sign up for COBRA now? It could be that he is now paying more out of pocket than the 35% of his old premium he would have to pay for.
2. If that same person was enrolled for full family coverage (himself, his spouse and 2 children), does this 65% subsidy apply to the entire family premium, or does it only apply to only the portion of the premium for the employee himself?
WHAT IF YOU WERE INVOLUNTARILY LET GO EFFECTIVE 04/01/08, AND PAYING FOR COBRA SINCE THEN……….WOULD I BE ELIGIBLE FOR THE REDUCTION EFFECTIVE 9/1/2008 FOR THE NEXT 9 MONTHS?