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February 2009 Feature: Changes to COBRA

The U.S. unemployment rate continues to soar and as a result, all eyes are on the stimulus package that President Obama is pushing the 111th Congress to pass quickly.  As part of the proposed stimulus package, there is a bill known as the Health Insurance Assistance for the Unemployed Act of 2009 (“the Act”).  If passed, the Act could substantially change how plans administer their COBRA benefits.  President Obama said in an interview with CNN, that the Act is crucial for Americans  who have lost their jobs and have no health coverage.

The Act has already passed the House of Representatives and is currently being deliberated upon in the Senate. The Senate bill is rumored to differ from the House bill. For purposes of this summary, we are providing you with a summary of the Act as passed by the House. Meritain Health will continue to follow this bill closely, and we will keep you updated as we learn more both regarding the Senate’s deliberation and ultimate passage of the bill.

To whom does the proposed Act apply?
The Act will apply to group health plans, including fully insured and self-funded health plans. Certain small employers (defined as having less than 20 employees on a typical business day), church plans and federal government plans are not subject to COBRA.

What does the proposed Act do?
The proposed Act as passed by the House of Representatives has two components to it. Part one deals with premium assistance for COBRA benefits and the second part of the Act deals with extending the current 18-month maximum for COBRA benefits to a longer period of time if the employee is 55 years of age or older or a long-term employee with ten (10) plus years of service with his/her employer.

Some key highlights of the proposed Act as passed by the House are:

• Subsidy. For any employee that involuntary loses their job between September 1, 2008 and December 31, 2009, the employee will only be required to pay 35% of their COBRA premium until the earliest of 12 months after the first day of the first month he/she is eligible for COBRA or the date following the date COBRA is set to expire.  The remaining 65% of the COBRA premium will be subsidized by the government by treating the remaining balance as a credit against the employer’s payroll taxes.
• Added notification requirements. The Act imposes both a notification requirement on the employee to notify the employer of certain information and for the employer to update COBRA notices with information regarding the availability for the employee to apply for the subsidy. Model Notices are to be issued by the Secretary of Labor within 30 days after enactment of the Act.
• Special election period. The Act would allow those employees who involuntary lost their employment prior to the Act becoming effective, but who did not elect COBRA, to subsequently elect COBRA during the 60-day period commencing on the date notification is given to the employee about the subsidy.
• Pre-existing condition may not be imposed. The Act provides that for any person who wishes to take advantage of the special 60-day enrollment period, a group health plan may not impose a pre-existing condition on that individual if there has been longer than a 63-day break in coverage.
• Regulations. The Act allows the Secretary of Labor to promulgate regulations or other guidance as needed.

When will the proposed Act go in effect?
The Act will most likely be effective either the date it is signed or shortly after. 

How does the proposed Act impact me as an employer?
COBRA forms and other plan materials will have to be updated to reflect any changes the Act imposes on groups’ COBRA benefits.

Compliance Quarterly is being provided as an informational tool. It is recommended that plans consult with their own experts or counsel to review all applicable federal and state legal requirements that may apply to their group health plan. By providing this publication and any attachments, Meritain Health is not exercising discretionary authority over the plan and is not assuming a plan fiduciary role, nor is Meritain Health providing legal advice.