Health Insurance Continuation Subsidy Important Part of Stimulus Package for Small Businesses

While a number of components of ARRA will significantly impact small businesses, a leading Professional Employer Organization (PEO) is urging small business owners to pay particular attention to a directive regarding a subsidy for health insurance continuation coverage.

"The provision on COBRA is a potential minefield for small businesses that do not outsource their benefits administration," said Sheryl Southwick, Director of Compliance at Gevity, a pioneer in the PEO industry with 25 years of experience providing HR services to business nationwide. "The subsidy process could cause serious cash flow problems," she explained, "and there are potential penalties for slow response or inaction."

COBRA (Consolidated Omnibus Budget Reconciliation Act) gives workers who lose their health benefits due to involuntary job loss and other designated situations the right to continue group health benefits for limited periods of time if they have no access to another plan. Under COBRA, qualified individuals are required to pay the entire premium for coverage at up to 102 percent of the cost.

This means that, while coverage is available, it is not always affordable, according to Southwick. "COBRA often results in sticker shock for employees who suddenly have to pay the full burden of their healthcare."

In seeking to reduce the burden during the current recession, ARRA provides a premium subsidy for up to nine months. Under the new law, Southwick explained, eligible persons would have to pay only 35 percent of the normal COBRA premium. The remaining 65 percent is reimbursed back to the employer through a federal payroll tax credit.

"And while employers will be reimbursed for their contributions," she continued, "it could take time for them to recoup badly needed funds from these unexpected expenditures."

Another aspect to be considered, according to Southwick, "is the long-range impact of this short-term subsidy." As the subsidy period extends to employees involuntarily terminated through December 31, 2009, she noted that the residual effect will be felt until nearly the end of 2010. In addition, Southwick explained, there is a "second-chance" clause that allows eligible employees who were terminated as far back as September 1, 2008, the opportunity to elect COBRA and take advantage of the subsidy even if they did not opt for COBRA at the time of their initial eligibility.

While this complex process takes time - and perhaps professional advice - to navigate, Southwick said, there are some basics that small business owners who handle their own COBRA processes should attend to immediately. They are:

• Understand eligibility requirements for your terminated employees and their dependents.
  • Who is eligible: employees and their dependents on your medical, dental and vision plans who were involuntarily terminated between September 31, 2008, and December 31, 2009
  • Who is not eligible: employees and their dependents who terminated on a voluntary basis as well as involuntarily terminated employees who are eligible for coverage under another group plan.
• Mail required notices to eligible participants no later than April 18, 2009. Watch the U.S. Department of Labor website for additional information on requirements and notices. Mailings should include:
  • Sending all existing COBRA participants notices informing them of the premium subsidy
  • Sending all individuals who are eligible for the subsidy, but are not currently participating in COBRA, a notice informing them of a 60-day extension to elect COBRA and receive a subsidy
  • Including premium subsidy information with the standard COBRA notice
• Determine what plans your qualifying COBRA participants are eligible for. You may choose to allow subsidy eligible individuals to elect a less expensive health coverage option or only offer coverage for what the participant was enrolled in when he or she lost their job.
• Ensure you have a process in place for receiving notifications from eligible participants who are offered health coverage through a new group plan. Individuals are required by law to report this to you.
• Set up your reimbursement process for the subsidy via credits against federal payroll taxes.

"This is one of those instances," Southwick concluded, "that there could be significant impact on business owners from not knowing what they do not know."

About Gevity

As a leading provider of HR solutions, Gevity helps small businesses nationwide maximize performance through its world-class HR expertise and services - including payroll, benefits, administrative processing, risk management, policies and procedures, new hire support, performance management, and employee development and retention. For more information, visit gevity.com.

A copy of this press release is also available in the newsroom & events area on gevity.com.

Gevity, Bradenton
Michael D. Mulholland, Vice President-Financial Planning,
Corporate Development and Investor Relations
1.800.2GEVITY (1.800.243.8489), x3007
mike.mulholland@gevity.com