News You Can Use: Employers expect cost hikes due to COBRA subsidy

This likely won't come as much of a surprise, unfortunately, but new survey numbers from Aon show 60% of employers expect their overall health care costs to increase as a result of implementing the federal COBRA subsidy.

Polling some 300 employers who attended recent Aon COBRA webinars, the consulting firm finds 40% expect their overall health care costs to increase 1% to 5% because of the subsidy; another 40 percent expect costs to spike between 6% and 10%; 12 percent forecast increases from 11% to 15%; 8% expect an increase of 16% or more.

“Typically, 5% to 10% of former employees enroll in COBRA, and we expect that number to increase to 14% to 18% as a result of the subsidy. As employers begin to plan for their 2010 health benefits, they must take the new COBRA subsidy costs into consideration,” says Tom Lerche, Aon’s health care practice leader. “Most plan sponsors continue to experience a 7% to 11% health care cost trend rate, so additional costs from this subsidy will impact overall health care plan strategy for 2010.”

In addition to higher medical plan costs from utilization and adverse selection, plan sponsors will have higher administrative and communication costs, he adds.

In other words, start building these costs into the budget, pros. And don't cost your company more money by not having all the information. Visit ebn.benefitnews.com, keyword "cobra" for in-depth EBN reporting on the subsidy and how you can prepare/protect yourself.

Tip of the Day: COBRA model notice error? No biggie.

Us EBNers got a little nervous this week, after one of us received an e-mail blast screaming of a "Material Error in DOL New Model Notice for COBRA Subsidy."

Long story short, the adviser that sent the message was concerned that in DOL's model notices for notifiying ex-employees of the COBRA subsidy, the election period on the notices doesn't jibe with federal regulations for the subsidy.


According to the rules, a COBRA-eligible ex-worker has 60 days to elect coverage from the date of termination of coverage or the date of the notice, whichever is later. However, DOL’s model notice does not contain language noting the 60-day election period may begin as of the date of termination of coverage.

Thus, the adviser worried, if employers sent a COBRA election package to ex-employees before their group coverage ended, the model notice implies the COBRA election period is shorter than it should be. Such an interpretation could leave employers open to litigation from ex-workers for not allowing the full 60-day election period, as well as on the hook for incurred medical claims.


However, EBN Contributing Editor and benefits attorney Frank Palmieri says, "I do not see it as a 'sky is falling' issue. Most employers do not send the notices early. I don’t see it as an error, but rather that the notice can be improved to address early issuance. Few employers are going to deny COBRA during this transition period, given all the confusion."


Sigh of relief, eh pros? However, that's surely not to say the COBRA subsidy hasn't been a tough issue to wade through. How are you coping? Comment and let me know.

Tip of the Day: Got COBRA questions? The IRS offers answers

The Internal Revenue Service has published a notice that contains 58 questions and answers addressing the COBRA premium subsidy. Only 58? Well, I suppose it's a good place to start.

News You Can Use: EBN sponsors COBRA web seminar

On the heels of last week's release of Department of Labor model notices to guide employers in explaining the federal COBRA subsidy for laid-off workers, EBN and sister publication Employee Benefit Adviser will moderate an informational web seminar tomorrow, March 25, offering more information about the notices and subsidy.

The session's featured speakers will be EBN Contributing Editor Frank Palmieri, founding partner of Palmieri and Eisenberg, and William Sweetnam, Jr. from Groom Law Group. Both are members of the American College of Employee Benefits Counsel.

Click here for registration information.

Tip of the Day: See the new IRS info on claiming the COBRA subsidy

Effective this week, employers no doubt want to claim credit for the federal COBRA subsidy provided in the economic stimulus law. Here's help to do just that.

New information at IRS.gov includes questions and answers for employers and a revised version of Form 941, the quarterly payroll tax return employers will use to claim credit for COBRA premiums. The new form will also be sent to about 2 million employers in mid-March.

Under the new American Recovery and Reinvestment Act, COBRA-eligible employees are responsible for 35% of the cost of COBRA coverage. Employers can receive a credit for the other 65% after submitting:

* Documentation they received the employee’s 35% share of the premium.
* A copy of an invoice from the insurance carrier showing proof of payment.
* Declaration of the former employee’s involuntary termination.

Tip of the Day: Prepare (quickly!) for COBRA changes

March 1 is literally around the corner -- the date when, in compliance with the new stimulus law, the government will begin a nine-month, 65% COBRA subsidy for laid-off workers.

Employers, however, have to pay the subsidy upfront, which means big changes for how they're accustomed to administering and overseeing COBRA.

“Employers will get the money back, but have to give the government a short-term loan,” says Jim Edholm, president of Business Benefits Insurance in Andover, Mass. “Employers have to get ready now to start administering the subsidy, which starts [this Sunday],” he says.

To comply with the new normal regarding COBRA -- the law that extends health insurance benefits for laid-off workers -- employers must:

* Pay the 65% to the government and then deduct that as a credit against payroll and income taxes withheld from employees.
* Reach out to employees who both did and did not elect to take COBRA upon termination, back to Sept. 1, 2008.
* Allow for a special "open enrollment" for ex-employees who are eligible for COBRA but didn’t take it. This lets them join at 35% of the cost.

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

News You Can Use: Govt. may subsidize COBRA

Someone who knows someone who knows a lobbyist close to the stimulus package talks tells Workforce Management that Congress may be considering a 50% to 60% subsidy of COBRA premiums for employees who lose their jobs. The subsidy would last 18 months, the maximum time workers can maintain COBRA through their ex-employers.

One of the biggest complaints about COBRA has long been that it's too expensive -- particularly for workers who suddenly find themselves out of work and/or need to cover their entire families. However, health industry experts also lament that Americans have been sheltered from the true cost of health care and coverage, which is why COBRA induces such sticker shock.

What say you? Should the government subsidize COBRA premiums? For how long? President-elect Obama seems to lean in favor, WM reports. Do you? Comment below.