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COBRA subsidy extension complicates benefits admin


WASHINGTON—Eleventh-hour congressional action extending a COBRA premium subsidy law assures continuation of the subsidy for millions of laid-off workers and their families, but also more work for employers.

Ending weeks of uncertainty, Congress gave final approval and President Obama signed into law late last month a Department of Defense spending bill that includes provisions extending COBRA premium subsidies.

Under the measure, H.R. 3326, the nine-month 65% premium subsidy—established by an economic stimulus measure Congress passed early last year—is extended by six months to 15 months for employees involuntarily terminated from Sept. 1, 2008, through Dec. 31, 2009.

In addition, workers who lose their jobs through Feb. 28, 2010, will be eligible for the 15-month subsidy. Without an extension, employees who lose their jobs after Dec. 31, 2009, would not have been eligible for the subsidy.

The extension of the subsidy will provide significant financial relief to employees who lose their jobs and group health insurance during the first two months of this year, as well as the hundreds of thousands of individuals who have collected the subsidy for nine months and had lost or were soon to lose the subsidy.

“Losing one job's is difficult enough. But losing one's health care along with it and worrying about being able to get treatment for oneself and one's family, or fearing bankruptcy in the event of injury or illness is something Americans should not have to cope with in this difficult time,” Rep. Joe Sestak, D-Pa., said in statement. Rep. Sestak previously introduced a COBRA premium subsidy extension measure, a portion of which was incorporated into the military spending bill.

While laid-off workers will benefit from the extension of the premium subsidy, the extension also will mean more work for employers and their COBRA administrators.

For example, many employers in late November began sending bills to COBRA beneficiaries whose eligibility for the subsidy ran out, asking beneficiaries to pay the full December premium rather than 35% of the premium.

Those employers now will have to calculate the overpayments and decide either to offset future COBRA premium payments by the amount of the overpayments or issue refund checks.

A more complicated procedure involves beneficiaries whose eligibility for the subsidy ended in November and who didn't pay the full unsubsidized December premium.

Under the legislation, those individuals—if they paid their 35% share of the premium in the month prior to losing the subsidy—will have a right to pay 35% of the premium later and receive retroactive coverage. Beneficiaries could receive retroactive coverage if they pay the 35% share within 60 days of the bill's enactment or, if later, 30 days later after their former employer sends them notice that describes the new 15-month premium subsidy.

That will require employers and COBRA administrators to identify beneficiaries whose eligibility for the subsidy ended, send them the required notice and, assuming they pay the required premium, retroactively restore their COBRA coverage.

Some employers and plan administrators may ease this complication by expediting notice to participants about the subsidy extension and sending out a revised billing statement, said Karen Frost, a health and welfare outsourcing leader for Hewitt Associates Inc. in Lincolnshire, Ill.

COBRA premiums aren't due until 30 days from the start of a monthly coverage period. So, if they received rapid notice, beneficiaries would have time to make their December premium payments reflecting the 65% federal subsidy.

The legislation also requires employers to send a special notice to all premium subsidy-eligible beneficiaries who are on COBRA beginning on or after Nov. 1, 2009, describing the 15-month premium subsidy.

“That will create work. Language will have to be developed for the notification document. And you will have to identify everyone affected and send them the notification. That is not a small effort,” said Linda Anderson, benefit administration consultant at Towers Watson & Co. in Chicago.

On the other hand, the legislation ends a problem created by the original subsidy law. That law required individuals to satisfy two conditions to be eligible for the premium subsidy: They must have been involuntarily terminated from Sept. 1, 2008, through Dec. 31, 2009, and they must have been eligible to receive the subsidy during that period.

That second condition was not widely understood and may have resulted in employees laid off in December not being eligible for the subsidy.

That could happen in situations where employers allowed laid-off employees to continue regular group coverage through the end of the month. As a result, those individuals would not be entitled to the subsidy because their COBRA eligibility didn't begin until Jan. 1, 2010, one day after the cutoff date.

The military spending bill ends what some experts say was a fairness issue by amending the law to tie subsidy eligibility to the date of involuntary termination.

And any additional work the legislation creates is a fraction of the burden employers incurred under the original law, Ms. Anderson noted. In that case, employers had to locate and provide notice of the COBRA subsidy to former employees who, in some cases, hadn't worked for them in half a year, while employers, at first, did not have official guidance on what constituted involuntary termination.

The new COBRA subsidy extension, though, may not be the last, especially if unemployment remains high.

“This may not be the end of it,” said Rich Stover, a principal with Buck Consultants L.L.C. in Seacaucus, N.J.

The likelihood of a future extension will depend on where the unemployment rate goes in the coming months, said Ms. Anderson of Towers Watson.

Statistics are not available on how many laid-off employees took the subsidy. But a congressional Joint Committee on Taxation report, developed when Congress approved the initial subsidy, estimated that the subsidy would benefit about 7 million laid-off workers and their families at a cost of about $25 billion.

One survey found that the subsidy resulted in a surge in COBRA enrollment rates. Hewitt Associates reported last August that the COBRA opt-in rate for terminated employees more than doubled after the subsidy program.

From March 1, 2009—when the subsidy generally first became available—through Nov. 30, 2009, monthly COBRA enrollment rates for laid-off employees averaged 39%, according to a Hewitt analysis of COBRA enrollment among 200 large employers.

By contrast, from Sept. 1, 2008, through Feb. 28, 2009, an average of 19% of involuntarily terminated employees were enrolled in COBRA.

“There is no question that the subsidy has made a difference. It has been of huge value,” Hewitt's Ms. Frost said.

With nonsubsidized COBRA premiums often about $400 a month for individual coverage and $1,200 a month for family coverage, the subsidy slashed health insurance premium costs for beneficiaries when they no longer had a regular source of income.