Businesses uncertain about extended COBRA benefit plan

The federal government’s announcement that it will spend $25 billion to help recently laid-off workers pay for their health insurance was welcomed by millions of unemployed Americans, but it has left many business owners scratching their heads about what the new law requires of employers.

James Duran, founder and president of Campbell-based Duran Human Capital Partners, said a lot of employers don’t fully understand the new law.

“Businesses are going to float two-thirds of the cost of COBRA and get our money back from payroll taxes,” Duran said. “But it’s not clear what the process is for getting your money back.”

Duran said a health plan could range in cost between $250 per month for a single employee to $2,000 for an employee and his or her family.

“We’ll be subsidizing that cost for nine months,” he said. “It’s going to hurt the companies who are laying off a lot of employees.”

16-month window for laid-off workers

As part of the economic stimulus plan, employers are required to subsidize 65 percent of the cost of coverage under COBRA — the Consolidated Omnibus Budget Reconciliation Act — effective March 1, to employees who are involuntarily terminated between Sept. 1, 2008, and Dec. 31, 2009. The employees are required to pay the remaining 35 percent of the premium.

San Jose-based insurance broker Andrea Trudeau said the law applies only to employees who were involuntarily let go, whether because of a reduction in force or poor performance.

“If someone resigns in lieu of being laid off and accepts a package, they’re not qualified for this premium reduction,” Trudeau said.

Employers get a dollar-for-dollar reimbursement of their share of the premium, and they receive reimbursement when they file payroll taxes. For most employers, that’s quarterly.

Trudeau said her company, Advanced Professionals Insurance & Benefit Solutions, is busy sending out participant letters for client companies.

Employers are required by law to send out notices informing former employees of their rights to COBRA premium subsidies by April 18. Notices must be sent to all employees who were involuntarily terminated between Sept. 1, 2008, and Feb. 17, 2009, whether or not they elected COBRA coverage.

Scott Hauge, president of Small Business California, said he has fielded a lot of questions from business owners.

“My concern is for the small businesses that don’t have a human resources department,” Hauge said. “You have to make sure you’re sending the right form or there could be civil action against you.”

There is a $100-per-day, per beneficiary fine for employers who fail to comply.

Some have told Hauge they’re tempted to give employees money instead to purchase their own individual plans.

Mountain View-based eHealthInsurance.com is offering laid-off employees an alternative to high COBRA premiums that benefits employers in the process.

Wendy Nice Barnes, eHealthInsurance.com’s vice president of human resources, said she is working with some employers to create co-branded brochures to include in layoff packages that explain COBRA alternatives.

“If you have a large number of people on COBRA, then you have a lot of people on your group plan,” Nice Barnes said. “People are usually on COBRA for a reason, and it could drive up your group rates.”

Nice Barnes said many unemployed workers are shocked when they see their employer’s premium.

“Group plans are comprehensive coverage, and that’s why there’s sticker shock,” she said. “The subsidy covers nine months of COBRA coverage, and if someone isn’t sure how long they’ll be out of work, they might want to consider individual coverage.”