A lift for the laid-off, COBRA changes bedevil employers
Monday, May 18, 2009
Puget Sound Business Journal (Seattle)
by Peter Neurath Contributing Writer

The federal government has begun picking up most of the tab for laid-off workers to continue their health coverage, but employers are feeling pinched by additional costs and hassles.
Since 1985, employees who left their jobs could stay covered under the federal Consolidated Omnibus Budget Reconciliation Act, or COBRA. The ex-workers had to pay 100 percent of the premium plus 2 percent for administrative costs.
President Barack Obama’s federal stimulus bill extends COBRA coverage to employees who’ve been involuntarily terminated since Sept. 1. Employees now pay only 35 percent of the premium, for up to nine months.
Employers shoulder the other 65 percent, but can recapture this expense later by taking a credit against federal payroll taxes.
This sounds simple enough, but the compliance details have left employers woozy. Benefits consultants have been holding filled-to-capacity seminars to help confused employers fully understand what’s demanded.
“Employers are telling us they are feeling overwhelmed by the new COBRA legislation,” said Kevin Cipoletti, area sales and marketing vice president at Gallagher Benefit Services Inc., in Bellevue.
Compliance isn’t just taking extra time; it costs money, said Trish Stober, director of compliance and operations at ClearPoint, in Seattle.
“The so-called stimulus from the federal government isn’t really a stimulus at all,” she said. “It is a cost shift to employers — who are being left with increased costs related to administration and (health care) utilization,”.
If the new subsidy lures more terminated employees to opt for COBRA coverage, employers may see higher insurance premiums next year, she said. That’s because COBRA participants, statistically, use more benefits than the average insured person.
According to ClearPoint, employees who leave their jobs tend to sign up for COBRA if they need medical treatment, which will increase the cost of their former employers’ health insurance. A healthy 23-year-old might well pass on COBRA, but a 43-year-old with a health condition is sure to sign up.
“COBRA is terrific for individuals,” Stober said. “But it could drive up health-care plan costs.”
There’s another cost as well. The law applies to those who lost their jobs as far back as Sept. 1, 2008. So employers must track down everyone eligible and inform them that they can elect to have subsidized COBRA coverage, said Alicia Scalzo Wilmoth, benefits counsel at Kibble & Prentice, in Seattle.
Technically, employers should have done this by now. The Labor Department issued model notices to use in contacting this group, Wilmoth said, and employers were expected to have notified ex-workers by April 18. What’s more, employers are required to tell current COBRA users that they also qualify for the subsidy.
If employers failed to do this by April 18, Wilmoth said, “they better get on it now.”
“Our research shows that there is not a lot of awareness of the new COBRA law,” observed Jim Hebert, president of Hebert Research Inc., in Bellevue. “And there’s confusion about what it actually involves. Whoever’s responsible for benefits needs to get hold of an insurance broker and make this a priority.”
One of the most befuddling issues is which former employees fall within the definition of “involuntary termination,” Wilmoth said.
“It’s very confusing,” she said, “because the guidance language is tough to decipher.”
Former employees are eligible for subsidized COBRA coverage, for instance, if they resigned, were discharged for reasons other than gross misconduct, were laid off, or because they lost benefits owing to a strike, lockout or to reduced work hours. They also qualify if they were involved in a divorce or legal separation that terminates the ex-spouse’s eligibility for benefits, or a dependent child is no longer covered.
“Via our compliance help desk and our COBRA seminars and webinars, we have received at least 100 questions on the new COBRA regulations,” said ClearPoint’s Stober.
The burden on employers varies with the number of terminated employees, reasons for termination, the processes in place for capturing data and how companies are handling COBRA administration, said Gallagher’s Cipoletti.
Those administering all this in-house have seen a significant increase in administrative workload and the number of steps they must take to comply with the law, he said.
“Even those that outsource COBRA services have seen an increased workload,” Cipoletti said.
All this is proving expensive as well as laborious.
There are a lot of hidden costs in the new COBRA law, Stober said, including printing letters and paying for postage.
Even if employers have been using vendors to administer COBRA, Stober said, the vendors now are charging more to cope with the new regulations. One, she said, is charging an extra $1,000.