The COBRA Subsidy – a Taste of the Future?

June 20, 2009

maze2An E-mail came across my desk recently.  It was from one of the many employee benefit-consulting firms and information services that have uncovered my e-mail address and bombard me with information.

This one had some startling advice.

It advised employers to deny all applicants for the COBRA subsidy.

Why, you ask.

Well, it seems that our federal government speaks with forked tongue on whether to make it easier for recently unemployed workers to continue their health insurance.

The American Recovery and Reinvestment Act (ARRA) says that employees who are involuntarily terminated can apply for COBRA continuation coverage.  If they have been involuntarily terminated, they become an Assistance Eligible Individual (AEI to the cognoscente).

An AEI (you are now part of the cognoscente) pays 35% of the normal COBRA premium – a fairly substantial premium subsidy, although for the unemployed, still a hefty burden.

Guidance from the Department of Labor (DOL) appears to give weight to the individual’s determination on whether the termination was “involuntary”.  They  offer this guidance:

If you believe you meet the criteria for the premium reduction, complete the attached “Request for Treatment as an Assistance Eligible Individual” and return it with your completed Election Form.  Under federal law, you have 60 days after the date of this notice to return your completed Election Form and Request for Treatment as an Assistance Eligible Individual.

If you are denied treatment as an “Assistance Eligible Individual” you may have the right to have the denial reviewed by {the Department of Labor (for private sector employees) or the Department of Health and Human Services (for federal, state, and local governmental employees) as appropriate}.  Additionally, certain high-income individuals may have to repay the amount of the premium reduction through an increase in their income taxes.  (Your income for the year would have to be more than $125,000 ($250,000 for married couples) before you would have to repay all or part of the premium reduction.)

Here is what the Employee Benefit News writes:

And, employers should keep in mind that guidance from the Internal Revenue Service has made clear that “involuntary termination” is to be interpreted very broadly, including employees who quit in advance of a threatened layoff, seasonal employees, and even those employees who quit instead of being relocated by their employer.

The rub comes later.

The way that an employer gets the other 65% of the COBRA premium is by claiming the COBRA subsidy as a credit on the quarterly tax withholding reports that an employer files with the IRS – Form 941.

The IRS apparently takes a dim view of employer mistakes.  If for any reason, the plan takes a credit for the COBRA subsidy and it is subsequently determined that the presumed AEI is, in fact not an AEI at all, the employer will be considered delinquent in their quarterly remittance to the IRS.  The employer will be assessed interest and penalties for the shortfall.  Anyone who has had experience with IRS interest and penalties, knows that they can mount very quickly.  Depending how long it takes the IRS to come to the conclusion that the COBRA subsidy credit was taken inaccurately, the interest and penalties could exceed the subsidy credit.

Thus the advice – deny the claim first

The ARRA has an expedited process to appeal COBRA subsidy denials.  If the feds say its OK, then you, the employer, are protected against excessive fines from the IRS.

One can only hope that this consultant advice is playing to employers who want to hear that kind of advice.

So once again, the federal government comes up with a temporary and half baked solution to a permanent problem – health care coverage for the recently unemployed.  It makes it complicated and confusing from the outset with approximately 15 pages of forms and instructions.  Then it throws a few more roadblocks in the way with contradictory motives from another federal agency.

The amazing maze of health care in the United States of America!  What does this portend for health care reform?

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The COBRA Maze

April 18, 2009

Today, April 18, 2009, is COBRA Subsidy Notice Day -the deadline imposed by the American Recovery and Reinvestment Act to send COBRA notices to those involuntarily terminated after September 1, 2008.

Not exactly the same as Paul Revere’s ride, the event 234 years memorialized by Henry Wadsworth Longfellow’s poem and remembered in Massachusetts with Patriot’s Day.  With apologies to Hank, I offer this little ditty to memorialize the event occurring this year..

Listen my public and you shall cuss
About the COBRA part of the stimulus
Twas the eighteenth of April in twenty O nine
When out was tossed a feeble life line

Those who imagine that a “government run” health care system might mean more bureaucracy should spend some time familiarizing themselves with COBRA.

Certainly since the ARRA law was signed on February 19th and the regulations and additional “guidance” were released on March 30th, there has been ample opportunity.  Our office has been flooded with solicitations for seminars and webinars, and guidance form assorted professional organizations.

It is a sad reflection on the values of our society that an event as disruptive as job loss is compounded by the loss of health insurance.  COBRA was designed to alleviate that somewhat by permitting people to continue on their employer’s plan as long as they paid the full cost.  Very few – only those with expensive on going treatments – take advantage of it.  Read the rest of this entry »