The federal government’s efforts to extend health benefits to the growing number of the unemployed have left benefits agencies and their clients scrambling to understand the ramifications.

As part of the American Recovery and Reinvestment Act of 2009, COBRA benefits for workers who have lost their jobs between Sept. 1, 2008, and Dec. 31, 2009, can receive a 65% premium reduction to continue health coverage through their former employer. The employer is reimbursed through a payroll tax credit.

Second chance at COBRA

The stimulus package also allows those who turned down COBRA benefits after Sept. 1 to re-enroll for a nine-month period with the subsidy.

With an April 18 deadline for employees to elect coverage, the scramble was on for both employers and their benefits administrators.

Mark R. Hite

Mark R. Hite, manager of the employee benefits division for Fairfax, Va.-based Kerxton Insurance Agency, said his company sent out emails to nearly 600 clients when the stimulus plan was passed in February and has sent five more since then. That is in addition to the “hundreds of hours of research” and seeking guidance from federal agencies, including the Department of Labor and IRS, he said.

On the other end of the phone have been employers with lots of questions and some even making major changes to their policies with Kerxton, which covers Maryland, Pennsylvania and Virginia. Hite said one week alone, five of his clients cancelled group coverage.

“A lot of groups are calling and canceling their group policies in favor of individual policies,” Hite said. “This is the straw that broke the camel’s back. How can they continue when they can’t make payroll and now have to cover 65% [of the health coverage]?”

A recent survey by Aon Consulting, indicated that almost 60% of more than 300 employers said they expect the new subsidy to cost them more for benefits. Of that group, 40% said they expect their overall healthcare costs to increase by up to 5% because of the new subsidy and another 40% expect a rise of between 6% and 10%.

Awaiting feedback

The scramble for guidance and information was also on at Hunt Valley, Md.-based Group Benefit Services, an employee benefit plan administrator serving the mid-Atlantic.

GBS President William Simmons told IFAwebnews.com that the company has about 6,400 businesses affected by the COBRA change and its compliance department spent “two weeks, full-time” on this alone.

“We assume the liability for COBRA, so we have to get it right,” Simmons said. “We plan to track this closely, on a daily basis.”

Simmons said he is anticipating feedback from clients to see what the interest is regarding the federal subsidy.

“I strongly suspect that with the subsidy, there will be a greater response to it than there would be with out it,” he said. “If you are out of work, for example, and your family coverage is around $1,300 per month and you have a subsidy, you have to weigh spending that money or spending it on groceries.”

This story originally appeared in the May 2009 print edition of Insurance & Financial Advisor.