Five Questions

When President. Obama signed the American Recovery and Reinvestment Act in February, one of the measures put into motion was a change in COBRA (Consolidated Omnibus Budget Reconciliation Act) to provide medical-insurance relief to laid-off workers. But it also created new burdens for employers. Historically, COBRA coverage has been paid by the out-of-work employee, and for many the cost was prohibitive. COBRA coverage still is good for 18 months, but—at least until the end of the year—the stimulus package makes employees responsible for only 35 percent of the cost for nine months. Attorney Suzanne Boy, a member of Henderson Franklin’s Commercial Litigation division who concentrates in appellate and employment law, explains the changes. 

1. What are the major changes, and what do they mean for an employer? The new regulations create a 65 percent subsidy that the employer is required to front on behalf of an employee who is eligible. The employer will be able to recoup that through a payroll-tax credit from the government. It means that they’re going to have out-of-pocket money that they probably weren’t expecting. This applies to any employer who offers health benefits and has employees who would be eligible for COBRA, and employers must comply with the notice requirements. They can get model notices from the Department of Labor’s Web site. They need to keep the proper forms and documentation. 

2. When did it go into effect? It was signed into law Feb. 17 and was essentially effective immediately. It applies to employees who were involuntarily terminated between Sept. 1 of last year and Dec. 31 of this year, so employers had to go back through their records and find out who might qualify and give them notice by April 18. If somebody was terminated in, say, November, before this bill was enacted, if they couldn’t make the COBRA payments and let their coverage lapse, this new plan allows them a second shot at it, with only having to pay the 35 percent.