HR Management & Compliance

Our Best Benefits Bet: Congress Will Extend COBRA Subsidy

Update Dec. 21, 2009: President signs bill including COBRA subsidy extension

by Ashley Gillihan

In February, President Barack Obama enacted the American Recovery and Reinvestment Act (ARRA). Among other things, the ARRA provided a temporary (up to nine months), 65 percent, federally funded, COBRA premium subsidy to any qualified beneficiary who became or becomes eligible for COBRA continuation coverage due to an employee’s “involuntary” termination of employment occurring between September 1, 2008, and December 31,2009.

The subsidy is ultimately funded by the federal government. However, the mechanics by which the qualified beneficiary actually realizes the subsidy significantly affect employer/plan sponsors. Under the ARRA, employer/plan sponsors “cover” the government’s 65 percent subsidy at the time the premium is paid by the qualified beneficiary (who must pay only 35 percent of the applicable premium). The employer/plan sponsor then recoups the 65 percent subsidy from the government through payroll tax credits. COBRA notices also had to be changed — forcing employer/plan sponsors to incur additional administrative costs.

The subsidy is expected to expire for events occurring on or after January 1, 2010. But recent congressional activity regarding health care reform, and the push to ensure that the uninsured obtain insurance, begs the question — will Congress extend the subsidy into 2010? 2011?

Congress must extend the deadline, yet none of the proposed health care reform bills proffered by the various congressional committees includes an extension of the subsidy. This seems to suggest that it will not be extended. Nevertheless, the buzz around Capitol Hill suggests that it may be extended. Extending the COBRA subsidy would be more consistent with the tenor of the health care reform bills and the previous actions of the Obama administration.

So what’s an employer to do? I am betting on an extension of the COBRA subsidy and am advising clients to prepare for it. Thus, any  budget should account for the additional costs incurred to administer the subsidy.

Ashley Gillihan is counsel in the Atlanta office of law firm Alston + Bird and is a member of the firm’s Employee Benefits & Executive Compensation and ERISA Litigation Groups. Mr. Gillihan focuses his practice exclusively on health and welfare employee benefit compliance and litigation issues for employers, health plan administrators and other health and welfare benefit plan service providers. He also has extensive experience assisting financial institutions and insurance companies who serve as Health Savings Account trustees or custodians.

Mr. Gillihan is active in publishing and speaking on various health and welfare benefit plan related topics including the following audio conferences

New COBRA Guidance for Employers: Clarifying the Complicated Subsidy

How 2009 Will Change Your Health and Welfare Benefits Plans

New HIPAA Rules Effective September 23: Data Breach Notification Requirements for Plan Providers

Is Your Health Plan Ready for Jan. 1? Mental Health Parity and Other New Benefits Rules

Also, you can keep up with the latest legal changes affecting employer benefits and trends in employee benefits with the Benefits Complete Compliance