I got an email this week from the person that handles some of the benefit package offered by our company regarding changes to employee health insurance thanks to the recently passed bailout stimulus recovery law. Now if you’re like me, you’re probably wondering what health insurance has to do with economic recovery. Well, apparently, plenty. What’s also incredible is the fact that, despite the bill having been debated and discussed by Congress, nearly a month since its passage, people are STILL analyzing it to gauge its full meaning and what it requires. Of course, the fact that the federal government is going to basically go on the hook for 65 percent of the premium costs for every laid-off employee eligible to recieive health insurance continuation (COBRA) benefits is also of note as well.
Ray has given me permission to share this information with ‘Grok readers. I am including the email as written so that you can get the flavor of what just one little facet of a 1,000 page law can do. Can you imagine what all these "little" pieces must add up to in manhours and costs of analysis, forms creation, communication, and administration? What if all such manhours had been spent on something actually PRODUCTIVE instead of simply trying to comply with the law?
To My Valued Clients,
I am sending this e-mail to you, to discuss briefly what I know about the recent law changes that affect your group insurance. On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act (ARRA). The law, in its final form, exceeds 1,000 pages length. Part of the law provides a subsidy for COBRA benefits.
COBRA Subsidy
Eligible workers will receive a 65% subsidy toward their COBRA continuation premium for up to 9 months. The subsidy will begin March 1st and will be administered by the Treasury Department as a credit against payroll taxes. The subsidy will terminate the date the individual becomes eligible for any new employer-sponsored health care coverage or Medicare. The subsidy is also available for state provided comparable continuation coverage.
Eligible Individuals
An assistance eligible individual must meet the following qualifications:
- The initial qualifying event must be for involuntary termination for reasons other than gross misconduct between September 1, 2008 and on or before December 31,2009
- The qualified beneficiary must have an annual income of less than $125,000, if single, or $250,000, if married filing jointly
In addition an attestation of the involuntary termination of employment will need to be made by the employer.
Employment Tax Offset for COBRA Subsidy
The way the subsidy works is that Qualified Beneficiaries pay the reduced COBRA monthly premium to the employer. The employer is required to make up the balance by reducing its employment tax deposits for federal income taxes, Social Security and Medicare and reporting these offset on a revised Form 941, which the IRS is currently finalizing. In addition, the Department of Labor has 30 days in which to issue model notices. Those are expected by out by March 18th, per a phone call we had with Dept. of Labor.
There are several unanswered questions, the main one in my mind being "does this law apply to groups of less than 20 in the state of New Hampshire?". We have not been able to get a definite answer in writing from anyone on that but the following is from the Dept. of Labor web site:
Note: COBRA generally does not apply to plans sponsored by employers with less than 20 employees. Many States have similar requirements for small plans providing benefits through an insurance company. The premium reduction is available for plans covered by these State laws.
http://www.dol.gov/ebsa/newsroom/fsCOBRApremiumreduction.html
The question to consider – Is NH one of these "Many states with similar requirements…"? Every broker I have talked to believe that the law applies to small groups in NH. Please see the attachment [posted below] for guidance if you are going to operate under the assumption that the law does apply to you. Again, nobody from NH Dept of Labor will say that in writing. I have asked several times.
Due to the immediate nature of the law, the insurance companies have not provided any feedback, forms or guidelines. I’m not sure if they will soon, if at all. In the interim, please feel free to contact me with any comments, additional information or questions.
Raymond M. White, CFP®, CLU, RHUChartered Financial Consultant
And you thought that the President and Congress were trying to fix the economy. Now, a business owner will have to write an even bigger check, should employees originally having turned this down when THEY had to pay, decide to opt-in. Oh sure, you can deduct it from what you send in to the government, but that’s AFTER you write the check. How will this help small businesses cope with a down market?
The one good thing is that, once again, I am glad that Ray handles these affairs for our business. As you can see, he is very thorough, and is doing necessary work that frees us up to actually try to RUN our business, despite what the government is trying to do… If you have needs in the employee benfits management area, I highly recommend Cornerstone.
[Oh, and if you didn’t get the headline, click here]
Here’s the aforementioned attachment:
March 3, 2009
ARRA State Continuation Changes
Key Points for Employers of Fewer Than 20*
DATES/COVERAGE
Law effective 2/17/2009
Impacts most plans effective 3/1/2009
Federal Government will pay 65% of Continuation of Coverage premium for all qualified beneficiaries or "Continuation Eligible" employees involuntarily terminated between 9/1/2008 and 12/31/2009, for up to 9 months beginning 3/1/2009Applies to medical (including HRA), dental, vision and EAPNOTICES
ALL terminated Continuation Eligible employees going back to 9/1/2008 must be notified of State Continuation subsidy available as of 3/1/2009ALL future terminated Continuation Eligible employees must be notified of Federal subsidyNotices must go out within 60 days of ARRA’s effective date (by 4/17/2009)
Former employee has 60 days from date of notice to elect Continuation of CoverageDOL has until 3/19/2009 to release model notices (but is expected to release them sooner)PREMIUM
Employer must collect 35% of Continuation rate (which may include up to a 2% admin fee) from former employee, before taking creditEmployer must pay carrier 100% of premium
Employer can take 65% of Continuation rate as credit on payroll tax deposits and report on form 941Employer can take tax credit against future payroll taxes or receive a refund if subsidy amount exceeds payroll taxes due (guidance forthcoming on how to obtain refund)OTHER
Employer must "authenticate" former employee’s eligibility and involuntary termination (i.e., employer initiated)Subsidy ends after 9 months or when former employee is eligible for another group plan or Medicare, or when normal Continuation duration ends (18 months for employee & 36 months for dependents); former employee or dependent is required under law to notify former employer of their eligibility for other group coverage (penalties apply)Subsidy phase-out for individuals earning $125,000 to $145,000 and joint filers $250,000 to $290,000*As defined by the Department of Labor.