Laid-off workers get break on COBRA; employers to foot bill

By Nicole Lucht

Friday, March 13, 2009 | 2 a.m.

Laid-off employees will get a break on voluntary COBRA health benefits this year, but employers will have to front the cost.

Under the American Recovery and Reinvestment Act, passed Feb. 17, employers will have to pay 65 percent of the employee’s Consolidated Omnibus Budget Reconciliation Act or COBRA premium, while the worker pays the remainder to the employer. The federal government’s subsidy program is effective through the end of this year.

Employers are facing extra paperwork as new rules to health benefits for laid-off workers took effect March 1.

Under normal circumstances, employees who are laid off and by default lose their health benefits, qualify for COBRA. But less than 10 percent of involuntary terminated employees sign up for the benefit because of its cost, which varies by state.

The average unemployment benefit in Nevada barely covers current COBRA payments for families, according to a report released in January by the advocacy group Families USA.

In 2008 the average Nevada family of four collecting unemployment benefits received $1,261 a month. That same family’s monthly COBRA premium was $915, a hefty 72.5 percent of their jobless benefit. Under the subsidy program, that family would have to pay only $320 to be covered by COBRA.

For individuals, the burden is lighter, according to the report. While receiving the same unemployment payment, the COBRA premium for the out-of-work Nevadan is $338 — 26.8 percent of that person’s income. With the subsidy, the individual would pay $118.

Although employers will have to subsidize the initial expense of covering 65 percent of the premium, the government will later reimburse the company through a reduced payroll tax.

But the change could pose a quandary for employers, especially those facing mass layoffs. For instance, a company laying off 100 workers could face a temporary cost of $57,700 per month if all those employees chose to enroll in COBRA.

There is some confusion among employers over just who is eligible for the government subsidy and how to administer it, said Tanna Prince, Nevada market vice president for Lockton, a company specializing in insurance that works with more than 40 local employers.

“The stage we’re in right now is just a ton of questions about how to do it operationally, because we have absolutely no idea how many people will pursue the subsidy,” Prince said.

“If a client has laid off 200 people in the last few months, and we get a hold of them and make the offer, and how many will take it, we don’t have any idea. We don’t know if it will be two or 20.”

Under the temporary rules, employers will have to notify every employee terminated as far back as Sept. 1 that they may be eligible for the COBRA subsidy.

Those employees let go Sept. 1 or later and who turned down COBRA coverage will have a second shot at it, but will have only 60 days to sign up. Employees turned down by their former employers will have the option to appeal.

But employees who already paid the full premium for COBRA won’t be eligible for the subsidy.

Rock Rocheleau, chief marketing officer for Payroll Solutions, said his company is concerned with the how to manage the payroll taxes that are supposed to reimburse the employer. Payroll Solutions manages 15,000 employees for other Las Vegas companies.

“I think it could be huge,” he said. “I have never seen a huge COBRA participation and I think that’s going to be the biggest deal. (There’s) never been a big use of it because it’s so expensive.”

Another challenge for employers could be the requirement to notify all employees by April 17 who initially qualified for COBRA as far back as Sept. 1.

It’s the unknown and lack of regulations to guide on the details that has employers flustered right now, Prince said.

“The fronting of the money is the big fear, because we don’t know how many people will take it,” she said. “We kind of think, on the one hand, people who aren’t working, especially low-income people, can’t even afford 35 percent of the premium, so it might be a function of your workforce,” she said. “The people that are more likely to take it are those with health issues. We may be all up in arms about this and then very few people take it because they can’t afford it and still don’t have a job.”