California Extends COBRA Coverage
Governor Arnold Schwarzenegger signed COBRA bill (A.B. 23) authored by Assembly members Dave Jones (D-Sacramento) and Nathan Fletcher (R-San Diego). Under the new law, Californians who are laid off or experience “other involuntarily termination” must be notified that they may be eligible for a 65% COBRA subsidy under the federal stimulus bill. Under COBRA, eligible individuals would only have to pay 35% of the premium and the federal government would pay for the remaining 65%. The federal premium assistance applies to periods of health coverage beginning on or after February 17, 2009. It offers coverage for up to nine months.

California residents have the additional protection of Cal-COBRA, which eliminates many exclusions in the federal program and offers a time extension for those whose COBRA eligibility has expired. In California, AB 23 gives certain employees a second chance to elect Cal-COBRA coverage. It now covers individuals who were involuntarily terminated from September 1, 2008 through February 16, 2009 and did not elect Cal-COBRA when it was first offered or who elected Cal-COBRA, but who are no longer enrolled (for example, because they were unable to continue paying the premium.) The federal law only applies to employers with at least 20 employees while Cal-COBRA extends those benefits to employers with two to 19 employees.

Federal COBRA Subsidy:
Changes and Challenges for Employers
A Towers Perrin report outlines some important changes for group health plans with the introduction of new tax-free federal subsidies for certain COBRA beneficiaries. The American Recovery and Reinvestment Act of 2009 (ARRA), will have many implications for employers’ budgeting and cost management operations, administrative processes and communication strategies.

Employers must fully understand their requirements and take action on definitions and deadlines. For instance, employers need to determine what constitutes an “involuntary termination.” This definition is not limited to layoff situations. It can include terminations for cause (other than gross misconduct). In addition, employers’ subsidy toward the cost of COBRA coverage, offered as part of a severance program, can affect the availability and the amount of the federal COBRA subsidy. In short, employers need to be able to to identify beneficiaries who are eligible for subsidies, assess subsidy maximization, and provide effective administrative support.

Budgeting and Cost Management

The federal payroll tax offset associated with the COBRA subsidy should eliminate the direct cost of the subsidy for employers. But, this provision may increase the number of COBRA beneficiaries, which could affect employers’ -COBRA costs since the claim experience of COBRA beneficiaries tends to be worse than that of the average participant. It will be critical for employers to understand the far-reaching affect on budgets and costs.

Administration

Employers will have to do a thorough examination of their administrative processes and make adjustments to ensure appropriate linkages and tracking systems are in place. Employers’ administrative processes must link the following:
• Payroll.
• Eligibility data and finance and support tax reporting.
• COBRA premium collection (and refund processing).
• Maintenance of supporting documentation and distribution of required notices.

Communication

Employers have to meet certain notice requirements by specific deadlines. Employers that typically outsource COBRA administration and communication to third-party administrators may face some steep challenges, especially when it comes to developing clear-cut communications. Employers should also review employee exit material packages to make sure they include up-to-date information on the new COBRA legislation. Integrated COBRA solutions should include an immediate response to compliance requirements and a long-term program re-engineering process. For more information, visit www.towersperrin.com.