Federal extension creates an administrative nightmare. Employers must notify laid-off workers or face penalties.

Just when business owners and employers where saying goodbye to 2009, the New Year welcomes them with another government mandate. A new extension of COBRA benefits. Unemployed workers got a holiday gift of extended subsidies for health care benefits — but employers will have to front the money and spread the news. The move is expected to help thousands of unemployed workers to keep their health care insurance for another six months, but will cause cash-flow problems and more paperwork for business owners.

Fortunately for our clients, most are currently outsourcing their payroll and employee benefits administration to an employee leasing company or professional employer organization, and won’t have to worry about it. That responsibility falls on their PEO who must contact laid off employees, extend the offer of benefits, handle the entire enrollment process, collect premiums, and provide payroll tax administration.

Unfortunately, the vast majority of employers, still have not discovered how a PEO can help to relieve or eliminate these tedious government mandates. For those of you, read below to learn about the new COBRA rules you can look forward to.

15 Month Extension and Reinstatement of Benefits
President Obama on Dec. 19 signed a six-month extension to federal stimulus funding for health care subsidies for workers laid off since the economy went into free-fall in mid-2008. The maximum length of the subsidy was extended from nine to 15 months, and eligibility was expanded to include workers laid off through the end of February. The initial window was for those laid off from Sept. 1, 2008, through Dec. 31, 2009.

Section 1010 of HR 3326, the Department of Defense Appropriations Act, extends: • The time an individual can receive the COBRA subsidy from nine to 15 months. • The subsidy to individuals who are involuntarily terminated today through Feb. 28, 2010.

It also allows:

• Certain individuals whose subsidy periods already expired and who failed to pay their full unsubsidized premiums to retroactively pay them.

Employers are required to:

• Notify former workers of the six-month extension and new February cut-off date.
• Notify and offer to reinstate former workers dropped from coverage when their initial nine-month period ended and those who paid full premiums after expiration. Refunds or credits may be due.

The subsidy:

• The federal government will pay 65 percent of COBRA health insurance premiums for eligible workers, but qualified workers have to pay the other 35 percent

Small and Midsize Business Owners Will Be Hit The Hardest
Vinny Catalano, area vice president at Gallagher Benefit Services said “Employers will need to allow (former) employees who had rolled off the subsidy an opportunity to roll back on for a total of 15 months,” That means tracking them down and getting them signed up again if they choose, as well as telling newly laid-off workers about the extended time limit. It also could mean money out of pocket because employers get reimbursed via tax credits rather than cash for the insurance premiums they have to pay. Unemployed workers hang on to coverage longer, especially if they are sick and need services. This can crank up health care costs for everybody at the company.

Michelle Dimarob, a lobbyist with the National Federation of Independent Business stated “it’s understandable people want to protect access to health care benefits, but to extend and expand the COBRA subsidy in the way it was set up is probably not the (proper) pathway to achieve the goal. It really does increase costs and cause cash-flow problems”. She added “the policy looks good on paper, but there are unintended consequences on employers”.

It looks like 2010 is starting off with a real bang for employers across the country. If you are feeling overwhelmed by the complex maze of compliance, regulations and government mandates, then you should consider a qualified HR outsourcing provider or PEO for your organization.

Sources: Sacramento Business Journal

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