New economic stimulus law requires immediate employer action on COBRA, includes other health measures

The new economic stimulus legislation (HR 1) includes COBRA subsidies for people losing health coverage due to a recent involuntary job loss. The measure creates immediate notice and other obligations for employers. President Obama signed the measure into law Feb. 17, 2009.

COBRA premium subsidies. The federal government will pay 65 percent of premiums for people eligible for COBRA due to an involuntary job loss between Sept. 1, 2008, and Dec. 31, 2009. Former employees and eligible family members must pay 35 percent of the COBRA premium to qualify, and those with adjusted gross income of at least $125,000 ($250,000 for joint tax filers) will have to pay increased personal income taxes to repay the government for some or all of the subsidy they receive. Employers may, but aren’t required to, allow eligible terminated employees to switch to coverage that costs less than the coverage held before the job loss. The premium subsidy is available immediately and will last for up to nine months, ending earlier if the individual becomes eligible for coverage under another group health plan or Medicare. Employers will receive the premium subsidy as a credit against payroll tax (i.e., wage withholding and FICA tax) liabilities. Multiemployer and fully insured group health plans may be subject to special rules. The law omits an earlier proposal to expand COBRA rights for older or long-tenured workers.

New notice required. Persons leaving employment for any reason between Sept. 1, 2008, and Dec. 31, 2009, must receive notices explaining the new COBRA rights. Notices must include information about the subsidy and forms to establish subsidy eligibility. The Labor Department is expected to develop by mid-March a model notice that employers can use. For individuals eligible for the special election period described below, the notice must also describe special election rights.

Special COBRA election period. Subsidy-eligible individuals who did not elect COBRA before the law’s enactment must be given a special COBRA election period beginning Feb. 17, 2009, and ending 60 days after the date of a new special election notice. Coverage for anyone making a special COBRA election would begin no earlier than Feb. 17, not on the date of the job loss.

Employer impact and actions. The subsidy significantly reduces the financial barriers to COBRA coverage that many people face. Employers are likely to see higher claims costs as more people find subsidized COBRA affordable. Given that COBRA premiums typically do not cover the full cost of coverage, employers should expect increased expenses. Employers should take the following steps to comply with the new law:

• Identify individuals who lost employer coverage due to voluntary or involuntary job loss since Sept. 1, 2008, and prepare to send them a notice (whether or not they currently have COBRA coverage).
• Decide whether to develop separate special enrollment and subsidy materials or revise existing COBRA election notices.
• Review the plan’s COBRA premiums to make sure they are set correctly.
• Gear up to administer the subsidy provisions.
• Check COBRA vendors’ capabilities to administer the special enrollment right and subsidy.
• Ensure the payroll department or vendor is prepared to recapture the premium subsidy through a payroll tax offset.

Other health provisions. Other health provisions in the final measure expand HIPAA privacy and security rules; increase certain commuting benefits; provide funding for health information technology, comparative effectiveness research and state Medicaid programs; and increase health coverage tax credits for more workers under the Trade Adjustment Assistance Act.