A lift for the laid-off, COBRA changes bedevil employers

http://seattle.bizjournals.com/seattle/stories/2009/05/18/focus1.html?b=1242619200^1828770

Friday, May 15, 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,”.

FULL story at link.

We are already sending more tax dollars to private insurance companies.

Boy o boy. It's a new day!

(but still with the insurance middleman).

The same money is going to the insurance companies that was always going there (COBRA folks currently have employer paid (at least partly) insurance but when they lose their job they have the option to pay privately for that same insurance. What this does is shift who the payment is coming from - by making the government the payer for 65% of their insurance premium.

This makes it closer to the Medicaid model of single payer. In Medicaid the government pays the premium - making it single payer - which is administered through private insurance programs. This is how SCHIP (Medicaid for kids) program works in Ohio - and I suspect elsewhere.

The challenge is that the single payer of 65% of the premiums is paying the insurance companies, rather than paying the provider directly. While I would love to get the insurance companies out of the middle, I care less about who administers the program than about the opportunity to add one more group to single payer (or something close to it) by having 65% of the cost of coverage paid by the government.

Cobra bills are ENORMOUS if you foot them alone. I like this 9 month transition where my bastard ex employer helps me out a bit.

there is a learning curve - which should be a one time expense. That doesn't amount to shifting the costs to the employers.

Employers are required to withhold taxes from their employees. Those withholding taxes (from continuing employees) are used to pay for the 65% employer pick-up for the laid off ones. Even though the article talks about recapturing the expense later by taking a credit against federal payroll taxes, withholding occurs continuously so there theoretically should not even be a time lag in the ability to cover the expenses

The employers who may have a legitimate grip are those who have too few employees to cover the premium pick-up - and I haven't read the rules to see how that is addressed.

Given the dire straights unemployed individuals are in, this seems to me to be the most straightforward way of not adding a second disaster (sudden inability to obtain health insurance because the COBRA premiums are cost-prohibitive) to the first one. Employers hold money owed to the federal government (withholding taxes for ongoing employees), laid off employees are entitled to have 65% of the COBRA premiums to be paid by the federal government, just shift the money directly to the payment rather than sending it to the federal government and back to the laid off worker.

who handle all the notices and paperwork for health benefits and COBRA and other things. This is just one more box to tick and a few letters to send.