Benefits Buzz

The Utilization Gold Rush - Scared Employees Rushing to Use Benefits...

In a down economy, there's plenty of humanity to go around.  Layoffs, how to find the next job, financial stress, etc.  One thing you may not have added to the list.  A mushrooming utilization of your medical plan, including big ticket items, as employees rush to have procedures that (1) they might have put off having done, or (2) are borderline necessary.

Bad knee?  Sure you might be able to work through the issue with some therapy, but if you're worried a job loss might be in your future, you might want to go ahead and get that 30K knee surgery performed next month.

Multiply that by 10% of your employee base and you've got an issue.  From Time Magazine:

"When Sophie, a financial analyst in Paris, learned that her bank would lay off 50 employees by this summer, she didn't react by mailing out résumés or trying to ingratiate herself with her managers — she scheduled arthroscopic knee surgery. "I'm doing it now because I won't be able to if I wait and lose my job," says the 27-year-old, who, fearing questions from her employer, spoke with TIME on condition of anonymity. By going under the knife ahead of her potential job loss, Sophie can use the firm's supplementary health insurance to cover the $4,000 procedure. As she says: "Insurance is one of the parts of having a good job you take for granted until you realize you may lose it all."

Sophie isn't alone. As the global economy continues to tank — the U.S. shed 663,000 jobs in March, and millions of jobs are disappearing from Madrid to Mumbai — employees are scurrying to exploit company benefits while they have them, scheduling dental exams, indulging in massages, utilizing company-covered therapists and buying bicycles at discounted rates. "People are petrified," says Dai Williams, an occupational psychologist at Eos, a career-consulting firm in the U.K. "It's a question of grabbing what you can while you can."

You can't really stop the thought process, and for the most part, you won't be able to stop the marginal calls on whether to have a procedure performed.  The economy's doing what I always thought about employees who opted for COBRA - my take was that if an employee takes COBRA, why wouldn't they take every opportunity to get procedures completed ASAP, in case they couldn't afford the payments down the road?

Now the economy's taken that same fear to employees who won't be impacted by layoffs, etc.  Nice...

Here Comes the Insensitive Question - Is the Stimulus Package Going to Make COBRA Like Unemployment?

Thought I would follow up today with a question that's been on my mind, and was rehashed in Greg Dagley's piece at the Buzz on the COBRA portion of the Stimulus bill.

Here's the question - is the COBRA stimulus package for everyone who has lost a job?  I know it's for the folks who have been laid off between the dates in question, but Greg's piece used the following language, which I think speaks volumes:

"The subsidy only applies to employees who’ve been involuntarily terminated for reasons other than gross misconduct.  Employees who voluntarily leave are not eligible.  So employers will now need to look through their HRIS and determine which termination codes can be used to identify involuntarily terminated employee that should be eligible for the subsidy.  Since there’s some grey area in determining who may have been terminated for “gross misconduct,” this task won’t be as easy as it sounds."

Here's the scoop from my perspective.  That language is straight out of the unemployment office handbook, and if you're an HR pro who has ever termed anyone and then fought an unemployment claim because you didn't feel your company should pay unemployment for someone who didn't try to make it work, you know the following reality:

You can't fight an unemployment claim for an employee who was termed for performance reasons in most states. 

Doesn't matter how many chances the employee was given, and how attainable the performance levels were.  You can't win that type of claim.  In order for an involuntarily termed employee to be denied unemployment, they have to steal something and be caught redhanded or simply refuse to come to work without notice multiple times.  That's pretty much it.  Want to talk about performance and how the employee didn't even try?  Most administrators in the unemployment office will listen, then rule in the employee's favor.

I'm all for a net to help those who need it, both from an unemployment and a health care perspective.  But guess what?  The way unemployment has migrated to "applying to employees who’ve been involuntarily terminated for reasons other than gross misconduct", it's easy to see the COBRA bill going the same way.

And, of course, it's easy to see the COBRA stimulus bill being extended indefinitely while the Obama administration figures out what to do with health care.  Which means that employers bear the cost, at least until they get the "benefit" of a tax break.

If employers are going to bear the upfront cost, they deserve some dialog about how folks who refuse to work hard are treated under the system.  I know it's a thousand shades of gray, but we don't need another government system administered like the unemployment office.

Careful -- This Snake Might Bite... (The New COBRA Bill)

If you’re a benefits professional and you haven’t started thinking about how the stimulus package that the President signed into law on February 17 will affect you, you ought to start now.  Chances are you’re impacted.  Part of the bill includes the subsidization of COBRA at 65% for 9 months for employees who are involuntarily terminated between September 1, 2008 and December 31, 2009.  Of course the federal government will fork over the 65% subsidy -- to the tune of $25 billion -- but not directly to participants.  Instead, employers and benefits administrators will need to adjust their COBRA billing accordingly and then deduct the 65% subsidy from the portion of payroll taxes that employers pay.  Rest assured, employers will not be reimbursed for the administrative costs incurred for setting this up.  And since the provision is short lived, the money spent setting up the administration will be lost once it expires.

The subsidy only applies to employees who’ve been involuntarily terminated for reasons other than gross misconduct.  Employees who voluntarily leave are not eligible.  So employers will now need to look through their HRIS and determine which termination codes can be used to identify involuntarily terminated employee that should be eligible for the subsidy.  Since there’s some grey area in determining who may have been terminated for “gross misconduct,” this task won’t be as easy as it sounds.

The subsidy applies to anyone who is involuntarily terminated between September 1, 2008 and December 31, 2009.  Employees terminated between September 1, 2008 and February 17, 2009 -- when the President signed the law -- must be given a special enrollment period during which they can enroll in COBRA coverage prospectively to take advantage of the subsidy.

Employers will need to work with their COBRA administrators and their payroll departments to figure out how to reduce their payroll tax to account for the COBRA subsidy.  Additionally, since there are income limitations on who can take advantage of the subsidy, employers are on the hook to generate W-2s for terminated employees taking advantage of the program showing how much subsidy they take.  Depending on the complexity of your organization and payroll system, this may be no small task. 

Not everyone is a fan of this legislation.  Generally speaking, COBRA participants are higher utilizers of medical coverage than active participants.  It’s estimated that, for every $1 in medical premium paid by a COBRA participant, the plan pays out $1.50.  For employers with self-insured plans, that means that the 65% subsidy may result in worse experience in their medical program, since more ex-employees are likely to pick up coverage.

There are some who believe that the 65% COBRA subsidy may actually increase the number of employees being laid off, especially among smaller employers.  Employers who’ve been willing to cut corners elsewhere to keep people on the payroll just so that those employees can keep their health care benefits may look at this as a way to cut staff without having to live with the guilt of leaving them without affordable health care.  In fact, there are a number of circumstances where an employee may be better off from a coverage premium perspective as a COBRA participant they s/he was as an employee (e.g., unsubsidized dental or vision coverage now subsidized at 65% under COBRA). 

The upside to the final version of the legislation signed into law on February 17 is that it left out a provision that had a lot of employers worried.  That’s the provision that would’ve allowed employees age 55 and older or those who’ve been with an employer for 10+ years to remain on COBRA until they become eligible for Medicare.  It’s not hard to imagine a 35 year old employee with 10 years of service who’s always wanted to start his/her own home business but was hesitant to do so because s/he wasn’t sure s/he could get health insurance on her own.  Under this provision s/he could have stayed enrolled on an employers COBRA plan until either s/he became Medicare eligible or the employer stopped offering health insurance to its employees.

This blog entry does not provide an exhaustive list of everything you’ll need to think about when implementing this change.  In fact, it barely scratches the surface.  If I rambled on about all of what you’ll need to think about 1) I’d miss something and 2) you’d stop reading.  There are a million tiny questions that’ll need to be asked and answered when you implement this for your organization.

By now, you should already be working on this.  If you aren’t, it’s time to start.  Employers are expected to take action to implement this change quickly.  You should be reaching out to stakeholders both inside and outside of your organization who are impacted by this legislation so that you can begin laying the groundwork necessary to implement the change.  Just remember -- it’s temporary.  Whatever you do now will have to be unwound later, so make sure the duct tape you use to rig this process together can be unstuck when the federal subsidy expires.

Disclaimer: I’m not an attorney.  I don’t even pretend to be one.  You should be working with your own internal and/or external counsel to interpret this legislation and what it means for your organization.

Editor's Note - Greg Dagley is a Benefits Consultant for a large multinational employer in Houston, TX. While his company has employees all over the globe, his job keeps him focused on US benefits and spending a lot of his time managing external vendors.  Is there any doubt his excel skills are more advanced than yours?