Thursday, February 19, 2009

COBRA Subsidy? Maybe Not . . .

[BUMPED TO TOP: This is just too important. I highly recommend reading the comments for even more details. HGS]

Washington works in strange ways, if you can say it works at all. One part of the recent legislation, which no one read before voting on, provides subsidies for COBRA.

Or does it?

We found several resources that have their take on the subsidy. Of course, like anything else having to do with new rules, the devil is in the details.

Problem is, we don't have any details yet.

But here goes.

The folks at Fox Rothchild, Attorney's at law, offered this perspective.

the American Recovery and Reinvestment Act signed into law today. It is going to create some change to COBRA administration that require some attention very soon. It provides for a 65% employer paid subsidy for COBRA premiums for 9 months.

An employer paid subsidy. That's an interesting wrinkle, especially since the ex-employee normally makes the election and is responsible for paying the premium.

The subsidy applies to those who suffered an involuntary loss of coverage between September 1, 2008, through December 31, 2009. But the Act does not specify what it will consider an involuntary loss, and it also provides that all qualified beneficiaries, regardless of the reason for their qualifying event, must get the notice. Employers and plan sponsors should go back to September 1, 2008, and review records to determine everyone (including dependents) who had a qualifying event and confirm that these individuals will get notice. This can be for voluntary or involuntary termination or reduction of hours, but it also applies to those made eligible as a result of divorce, death or aging out of coverage. They may not get the subsidy, but you must be prepared to send them the notice.

This is like watching sausage being made.

You not only don't know what is going in, but what is coming out either.

The Act includes a retroactive provision that allows those who were eligible for COBRA and did not elect. It creates a window for them to now elect continuation coverage retroactive back to the first date of the qualifying event subsequent to September 1, 2008.

So what if someone bought coverage other than COBRA? Can they drop it and pick up COBRA going forward?

Or say they did nothing, but had a major claim in the interim. Can they elect COBRA retroactively and expect COBRA (and the taxpayer subsidy of course) to cover the claim?

Recognizing that now there is an added cost to reductions in force that equates to paying 65% of COBRA premiums, employers must consider this added expense when considering the cost benefit of a reduction in payroll. Not all eligible employees will elect COBRA because of the subsidy, but it can reasonably be anticipated that more will than would without the subsidy. If you are in the process of reducing the workforce, affected employees should be advised that the subsidy is available, but application of the subsidy will not be finalized until the close of the transition period.

OK, so the employer is laying off employees to save money. After the RIF, say half decide to opt for COBRA. Since this is an employer subsidy, the employer must pay their share, collect the balance from the ex-employee, and then ask the government for a refund of their share.

Or something like that.

Regardless of the mechanics, the RIF was to save money, but the COBRA SNAFU might create cash flow issues for the employer, leading to more lay offs, creating more COBRA elections, which creates more cash flow issues, leading to more . . . .


I know I am.

UPDATE (HGS): New details on this issue have come to light, including news that this may apply to smaller groups, as well. Click here.
blog comments powered by Disqus