What is in the New ARRA Law that Obama signed? Some details on COBRA changes, while we wait for details on implementation.

by L.A.S. --

While the thousand-page ARRA law (American Recovery and Reinvestment Act) became law on March 1, 2009 when President Barack Obama signed it on Feb. 17, your employer was awaiting the details on the law in order to be in compliance with it. This means as a practical matter that thousands desperately waiting for help in keeping up their former employer's insurance under COBRA provisions could not be assured of a smooth transition to the emergency provisions of the law.

The law itself is written rather vaguely and so employers are scrambling for guidelines on implementation of the new rules. Granted, the ARRA law was written under pressure and so some parts are less defined than others.

THE OLD COBRA LAW: a qualified beneficiary who elected to continue health insurance coverage under his former employer's group plan had to pay the full premium, plus a small percentage (two percent) toward handling fees.

THE NEW COBRA LAW: Employees who were terminated between Sept. 1, 2008 and Dec. 31, 2009 “due to an involuntary loss of employment” will have 65 percent of the premium subsidized by the federal government for a period of UP TO nine months. Included in the group of employees covered by this new provision are those former employees who already declined COBRA coverage. Former employees will be covered for a total of 18 months: nine months of subsidized coverage and nine months of unsubsidized coverage.

The subsidy is NOT available to employees whose modified adjusted gross income exceeds $145,00 (or $290,000 for joint filers). Those with incomes between $125,000 and $145,000 will see a proportional decrease in their subsidy.

The subsidy is supposed to paid out of credits against the employer's payroll tax liability. In other words this is an immediate tax exemption for the employer and should not be a crushing burden to them financially. Anyone who claims otherwise is not understanding the ARRA provisions.

To restate it more simply: eligible individuals pay 35 percent of the total premium while the employer pays the other 65 percent, which is then reimbursed to the employer as a tax credit.
Some confusion may exist over some proposals that did not become part of the final bill. One major item that was changed was the proposal to allow those former employees over age 55 to re-enter the COBRA umbrella of coverage, at least until they became Medicare eligible or obtained coverage through another employer. Again, that proposal failed to become part of the final bill.

Other proposals that died in the talking phase includes one that would have extended coverage under COBRA ; it would have been far too costly and would have essentially rewritten the whole COBRA program. While we might discuss such issues again one day, it was deemed entirely inappropriate for emergency or stimulus legislation.

Will the sickest former employees likely rush to get covered under this new COBRA provision? It is likely that the answer will be yes, just because of the fact that people with ongoing health issues need uninterrupted checkups and medications. People do not elect COBRA unless they already have health issues that make it difficult to be accepted for other health insurance policies.

Nevertheless, one must bear in mind that for most people, even those with serious health challenges, do recover and return to the realm of the healthy.

The other significant part of the ARRA bill which impacts health care costs is the provision to speed up conversion of medical records to an electronic, computerized form. Nineteen billion dollars was earmarked for this huge effort. We already have the proven example of the VA which has converted its medical records to an electronic format, and has seen it raise levels of accuracy and speed of transmission to other providers.

A major barrier to this conversion is agreeing on a format that is compatible with the majority of providers, and observing the laws regarding privacy and security of medical records as per HIPAA requirements. While the impetus for writing the HIPAA law was to maintain security of medical records when electronically submitted to insurers, it is at times used to block or deny proper access to those medical records.