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Stimulus COBRA Subsidy Leaves Employers Seeing Double

Massachusetts employers will apparently be required to continue funding the state Medical Security Plan for unemployed workers while also paying a refundable 65 percent subsidy for COBRA benefits included in the economic stimulus bill signed by President Obama Tuesday. AIM has learned that despite exhaustive efforts by Massachusetts officials to integrate the two programs, employers will end up funding two programs intended to deliver health insurance benefits to people who lose their jobs.

The overlap of the state and federal health insurance programs is just one of a raft of complex issues for employers emerging from the $789 billion stimulus measure. Other issues include extension of unemployment benefits, expansion of the Trade Adjustment Assistance program, and new rules on executive pay and H1-B visas for companies involved in the federal Troubled Asset Relief Program (TARP).

The Massachusetts Medical Security Plan has been in place for 18 years. Employers fund the plan through a $16.80 per employee per year surcharge on their unemployment insurance payments. The plan pays 80 percent of COBRA in some cases and pays the full cost of insurance in others and is more generous for people up to 400 percent of the federal poverty level than the new federal subsidy program. The state assistance ends when eligibility for unemployment insurance ends.

The federal program, however, assists people with incomes up to $125,000 for an individual and $250,000 for a family. Assistance runs through the COBRA period or until the worker becomes eligible for another group plan.  Here are the specifics:

• Subsidy - Eligible workers will receive a 65 percent subsidy toward their health care coverage premium for up to nine months.  The subsidy is paid either by the employer. The Treasury Department will administer the subsidy, providing employers with a credit against their liability for employment taxes. The subsidy would terminate upon offer of any new employer-sponsored health care coverage or Medicare eligibility.
• Employee Eligibility - Individuals who have been involuntarily terminated between September 1, 2008 and December 31, 2009 with annual incomes less than $125,000 (single) or $250,000 (couples) are eligible for the COBRA premium assistance, along with their family.  Qualified individuals, who initially decline COBRA coverage, would be given an additional 60 days after they receive notice of the special election period to elect to receive the subsidy. The election period begins on the date of enactment of the stimulus bill.
• Special Enrollment - The bill allows group health plans to provide a special enrollment right to allow eligible individuals to elect different coverage under the plan in electing COBRA continuation coverage.
• Notice Requirements - COBRA notices must include information on the availability of the premium assistance.  Model notices from the Department of Labor are due 30 days after enactment.
• Effective Date - These provisions are effective for premiums the first calendar month following the date of enactment.

State officials spent much of this week searching for ways to use the federal program to help buffer exploding demand for money from the Massachusetts Medical Security Trust Fund. One idea would be for the state to pay the 35 percent employee contribution to health insurance policies obtained under COBRA. The solvency of the Medical Security Trust Fund is important to employers, since assessments would increase if the fund ran out of money.

AIM President and Chief Executive Officer Richard C. Lord commended Suzanne M. Bump, Secretary of Labor and Workforce Development, for attempting to have language included in the stimulus bill that would have coordinated the federal COBRA subsidy with the state Medical Security Plan. The language did not appear in the final version of the measure.

“The employer community appreciates the efforts of Secretary Bump and her staff to make the COBRA subsidy provision work as smoothly as possible for Massachusetts employers,” Mr. Lord said.