Employers need to assess potential impact of COBRA subsidy and expansion proposals in congressional economic stimulus plans

Improving access to affordable health coverage through COBRA is an element of the economic stimulus package. Employers – particularly those that have undergone or are planning layoffs or reductions in force – may be significantly affected by these developments and should work quickly to assess the increased administrative and claim expense impact now, before the provisions become final.

COBRA subsidies for unemployed. The House-passed bill (HR 1) would subsidize 65 percent of COBRA premiums for covered employees involuntarily losing their jobs between Sept. 1, 2008, and Dec. 31, 2009. Applicable to both employee and dependent premiums, the subsidy would last for the earlier of 12 months or until the individual is eligible for new group health plan coverage or Medicare. Employers would also have to provide new notices and election periods. A Senate measure (S 1) has the same provision but limits the subsidy to just nine months.

Observation: The subsidy significantly reduces the barrier to buying COBRA coverage. However, employers would bear direct, unplanned administrative costs for issuing new notices, managing new election periods, and billing and collecting the individual share of the COBRA premium. Employers also would have to front 65 percent of COBRA premiums until receiving a credit against payroll tax liabilities or a direct government payment for the subsidy amounts. Employers are likely to see higher claims costs, as more people would find COBRA affordable because of the subsidy. The subsidy is a stop-gap measure and does not answer the need for less costly alternatives.

Expanded COBRA rights. In a permanent expansion, individuals could keep COBRA coverage until eligible for Medicare or other employer coverage if they are age 55 or older or have at least 10 years of service with the employer when first eligible for COBRA due to voluntary or involuntary job loss or reduction in hours. This provision is in the House-passed bill, but not the Senate version.

Feb. 5 web briefing: Federal health care reform prognostication

With broad health reform on the horizon and incremental reforms, such as COBRA expansion and subsidies, advancing in Congress, join this free, one-hour web briefing to learn what changes lie ahead and how to align your organization.

Date: Feb. 5, 2009

Time: 2:00 - 3:00 PM ET

Where: Your Internet-connected computer for the visual and telephone for the audio

Cost: Free

Speakers: Amy Bergner, Washington, DC

Linda Havlin, Chicago

Geoff Manville, Washington, DC

Observation: The House version could be extremely costly for employers if many former employees remain unemployed (or ineligible for other group health coverage) and continue COBRA coverage for long periods.

Employer concerns and actions. Business groups oppose the House proposal to use COBRA for long-term coverage, citing potentially huge employer costs to extend coverage periods. Employers may wish to “model” the impact of both versions by estimating the volume of potential enrollees and then look at various scenarios – best case, worst case and others – to see potential impacts. Both proposals include new funding to foster health information technology and assist state Medicaid programs. Democratic leaders hope to ready a final bill for President Obama to sign by mid-February, but reconciling the COBRA proposals – and a larger debate over unrelated tax proposals – won’t be easy.

We present our web briefings for our clients, potential clients and other interested parties, but we reserve the right to exclude employees of competitor firms. Please register for this event using your corporate e-mail address.