New COBRA Subsidy Creates Administrative Work for Employers

New Plan Makes Changes to COBRA

On February 17, 2009, Congress approved President Obama’s $787 billion economic stimulus package. “The American Recovery and Reinvestment Act” (ARRA) will make a number of changes to employee benefits, especially to COBRA benefits. Under the Act, COBRA will temporarily become more affordable for employees who involuntarily lose their jobs between September 1, 2008, and December 31, 2009. This offers some much-needed help and peace of mind for employees who have lost their jobs during the nation’s current economic crisis, but also creates an administrative burden for small businesses.

Employees Will Spend Less Money for COBRA Coverage

In the past, obtaining COBRA coverage required employees to pick up the portion of the health insurance premium that was previously covered by their former employer, in addition to the amount that they were paying while employed. The new legislation creates a federal COBRA premium subsidy for covered employees (and their qualified dependents) as well as those who are otherwise eligible for COBRA during this period. The subsidy will apply to premiums paid for the periods of coverage beginning on or after March 1, 2009, and will be available for up to nine months. As with most new regulations, there are potential benefits and challenges with this plan.

Employers Face Additional Administrative Burden and Potential Penalty Fees

As a result of this new legislation, employers and plan administrators will immediately face significant new notification and payment responsibilities. Companies that maintain and administer their own benefit plan(s) are responsible for complying with this legislation, and non-compliance can result in fines as high as 110% of the subsidy amount. Companies that do not benefit from the services of a Benefits Administrator, employment lawyer or Professional Employer Organization (PEO) must administer COBRA themselves and follow very detailed guidelines with respect to this plan.

Plan Administration includes:

  • Identifying individuals eligible for COBRA who were terminated on an involuntary basis on or after September 1, 2008.
  • Notifying these individuals of their new COBRA election period and the availability of the subsidy within 60 days of the bill’s enactment.
  • Paying the 65% share of the COBRA premium for eligible individuals.
  • Determining participant over-payments and credit payments to future premiums.

Oasis Outsourcing Clients Have an Advantage

As a PEO, Oasis Outsourcing will handle most of the administrative burden for our clients who participate in an Oasis-sponsored health insurance plan.

This means that Oasis Outsourcing will:

  • Identify individuals eligible for COBRA who were terminated on an involuntary basis on or after September 1, 2008.
  • Notify individuals within 60 days of the bill’s enactment of their new COBRA election period and the availability of the subsidy.
  • Pay the 65% share of the COBRA premium for eligible individuals and reflect the revised charges on premium statements sent to participants.
  • Determine participant over-payments and credit payments to future premiums.
  • Revise and update COBRA communication materials.

All in all, the plan will likely accomplish what it is intended to achieve – to help terminated employees with limited income be in a better position to financially maintain healthcare coverage. Employers, however, could suffer if they do not have the administrative expertise or capability to comply with the new regulations.