Tuesday, February 17, 2009

News You Can Use: Stimulus expands COBRA

U.S. House and Senate leaders reached a deal late last week on a $789 economy-recovery package, which includes $21.4 billion for health insurance assistance for laid-off workers. COBRA-eligible workers would receive a 60% subsidy toward their COBRA premiums for nine months.

The House-Senate conference report on the stimulus plan also states that individuals with annual incomes over $125,000 (for singles) or $250,000 (for couples) would not be eligible for the COBRA subsidy. The Treasury Department would pay the subsidy and allow employers that administer COBRA benefits to receive a credit on payroll taxes.

Currently, COBRA laws require employers with more than 20 workers to allow former employees to retain their health insurance for up to 18 months. The worker pays the full COBRA premium and a 2% administrative fee. Most employers outsource COBRA administration to a third-party vendor.

Benefits experts explain that, although the government and the employee are footing the COBRA premiums, the worker still remains part of the employer's group health plan, which means that claims incurred by that individual could have an effect on the group's premium rates down the road.

"In exchange for this windfall, some employers would like to remove all COBRA member claims from the employer plans, thus establishing a new pool representative of this risk only, and ultimately be able to set rates and benefits based on the experience of the pool," says Robert Nuzzi, senior vice president of employee benefits at Cook, Hall & Hyde, a New York-based employee benefits and risk management services firm.

Despite the government subsides, COBRA coverage is still a costly feature for unemployed people, says Carl Mowery, director of the compensation and benefits practice at SMART, a HR consulting firm. For that reason, "it would seem more appropriate to have health care benefits associated with unemployment link to unemployment benefits," he asserts. --EBN Industry inBrief

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