Stimulus Packages Changes COBRA Requirements

Our accountant, Glen Todd of Glen Todd & Company PC, sent me a very interesting email. He forwarded what he considered a really good synopsis by McKenna Long & Aldridge LLP of a very serious provision of the Stimulus Act. On February 18, 2009, McKenna Long sent out a Corporate Advisory entitled “Employers Required to Front COBRA Costs Beginning March 1, 2009.” According to the information they provided, there is a section in the Stimulus Act that relates to the COBRA subsidy. The Act changes the COBRA requirements for businesses. Previously, only companies with 20 or more employees were required to provide COBRA to eligible terminated employees. Now, each state will dictate the company size where COBRA requirements kick in – in Maryland, where we're headquartered, it is 2 employees.

The other big issue with the change is that the Act requires the employers to pay 65% of the premiums for the COBRA-covered employees for up to nine months, where previously the employee paid 100%. The employer will be reimbursed by the government later in the form of tax credits, or a direct reimbursement if the company’s tax liability doesn’t cover the premium cost. This could cause huge problems to small businesses who can’t afford to pay the 65% premium for employees who are no longer working for them.

In a nutshell, the McKenna Long newsletter says “If you sponsor a group health plan, you must act quickly to implement the new requirements by March 1, 2009 (or earlier where coverage terminates before the end of the month, e.g., on date of termination of employment).” Note: McKenna Long’s newsletter states that their information is “only a summary of portions of the Stimulus Act.” They recommend contacting them or your own attorney for more information about the subsidized premiums for continuation coverage and assistance in revising your forms.” For more information on McKenna Long, visit http://www.mckennalong.com.

I read the information and my blood ran cold. The implications and impact on small businesses probably will be extreme. With the cost of health insurance already being high, am I being expected to front the 65% of the monthly continuation costs for an employee that no longer works for me? Imagine laying off employees because you can't pay them and then having to pay their COBRA coverage. It doesn't make sense. I thought the Stimulus Act was supposed to help small businesses. The financial impact will affect how and if companies offer health plans to their employees and may result in companies cancelling the plans they already offer.

The newsletter continues saying “the company must subsidize both the cost of COBRA continuation coverage and state-mandated health continuation coverage (collectively referred to in this alert as “COBRA”) elected by the Eligible Individual. McKenna Long indicated the definition of eligible individual as “any employee who is involuntarily terminated between September 1, 2008 and December 31, 2009 (employees terminated for gross misconduct or voluntarily terminating are not eligible); and the employee’s spouse and dependents.”

To help determine if a company is subject to State mandates, McKenna Long provided this link to COBRA Continuation Coverage for Small Firm Employees (http://www.statehealthfacts.org/comparemapdetail.jsp?ind=357&cat;=7?=88&yr;=18&typ;=5&cha;=586).

Their newsletter has a list of 12 bullets with action items and 4 key dates beginning on March 1 and ending on April 30, 2009. This is not a lot of time to review the provision, make decisions and implement a plan to address the new requirements.

Since this is an overview, there is probably information that the McKenna Long newsletter does not address. To make good decisions, I need to find out how this will specifically impact my business. My first calls on Monday morning were to our insurance broker, accountant and attorney so I understand the financial, legal and paperwork implications of this provision. My recommendation to other small business is do the same.

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