Guest Article

From Mandated Health Benefits--The COBRA Guide, published by Thompson Publishing Group, Inc.

Employers Concerned Over 'Troublesome' Provision in COBRA Tax Credit Proposal Under Trade Assistance Bill

Three months after a Senate-approved COBRA subsidy program was stripped out of an economic stimulus law, in May the Senate passed a more limited proposal for COBRA tax credits as part of trade assistance legislation. Employer groups are waiting to see if this newest COBRA expansion meets a similar fate and is ultimately stripped from the trade bill.

"This whole debate was why employers love to hate COBRA all over again," said Neil Trautwein, director of employment policy for the National Association of Manufacturers (NAM). He noted that employers have always been concerned about COBRA's increased potential for adverse selection, and that its 2-percent administrative fee does not adequately compensate them for COBRA program costs.

"There is a concern that a COBRA tax credit will result in more COBRA elections and more adverse selection," said Trautwein. "We are not pleased with the COBRA tax credit, but are strong proponents of trade promotion assistance and some expanded trade provisions. But we do not think that health care mixes well with trade issues."

An official with the ERISA Industry Committee (ERIC) noted ERIC's position is that any type of COBRA expansion is bad, and the group was particularly opposed to a COBRA subsidy proposal that was in an earlier version of the trade bill. However, ERIC finds the tax credit more tolerable, although it does have some "troublesome" provisions.

Those problematic provisions were outlined in a May 30 report by the American Benefits Council (ABC), which noted that the tax credit's "numerous other administrative burdens and ambiguities" would "affect the workability of the program."

Bill Summary

The Trade Act of 2002 (H.R. 3009) was passed by the Senate May 23 by a 66-30 margin. The legislation is a consolidated version of several bills Congress had been debating designed to help U.S. workers adversely affected by import competition through various types of "trade adjustment assistance" (TAA). An earlier bill included a Democrat-supported COBRA subsidy program. However, in early May, the White House and Republican and Democratic leaders reached a general agreement on H.R. 3009 that included a 70-percent tax credit for COBRA coverage and other "qualified health insurance" for "eligible workers." The tax credit would be effective for taxable years beginning after Dec. 31, 2001.

Generally, the bill defines an eligible worker as an individual qualified for trade assistance and without other specified coverage (where at least 50 percent of the coverage cost, as determined COBRA's tax code section, is paid or incurred by an employer or former employer). In addition to COBRA coverage, qualified health insurance would include state-based continuation coverage; high risk pool or state-based insurance coverage; state government employee plans; a direct payment arrangement entered into by a state and group health plan, insurer, administrator or employer; private purchasing pools; or individual health coverage.

States also would receive grants to help eligible workers and their dependents enroll in COBRA coverage and other insurance, and to help with related administrative expenses.

The bill would establish a new, extended COBRA election period for eligible workers whose election period expired before the law's enactment. Such workers would have 60 days to elect COBRA coverage after they become certified to receive trade assistance. Any gaps in coverage before becoming an eligible worker would be ignored for purposes of the 63-day break-in-coverage rules under the Health Insurance Portability and Accountability Act.

But before individuals could become eligible for the tax credit, they would have to become certified as "adversely affected" workers, suppliers or downstream producers eligible for trade assistance. To that end, workers, their representatives and certain other entities would have to file a petition for that certification with the U.S. Department of Labor (DOL) and the governor of the state where their company operates. The U.S. president, and Senate Finance or House Ways and Means Committees also may petition the DOL to initiate a certification process. Among other things, the DOL also would have to provide "prompt and full information" to certified workers, including procedures for applying for the available benefits and services under the legislation.

Furthermore, the Treasury Department would have to establish a program, and issue regulations, for advancing premium payments for certified workers to "providers of health insurance" as defined under the tax code, and notify those providers regarding the COBRA tax credit and the temporary extension of the COBRA election period.

Employer Concerns

As noted earlier, ERIC's major concern was that trade assistance legislation would include a "COBRA-only" subsidy. ERIC representatives met "extensively" with Senate committee members and staffers about this concern. The end result was the more "encouraging" tax credit proposal that includes a "broader array" of health insurance, such as state high risk pools and individual insurance, the ERIC official noted.

But still, there are those "troublesome" and "ambiguous" provisions. The ABC report discussed several problems with these provisions, including:

According to ABC, the end result would be that "employers and health insurers would be put in the position of immediately administering a complicated and ambiguous new COBRA program for which there is no guidance."

ERIC shares similar concerns. However, the ERIC official said that these are fixable, "technical concerns," and the group is "fairly confident" that members of Congress are aware of the problems. But he stated that Congress may have "bigger fish to fry" regarding the tax credit proposal. For example, more individual market access -- and a smaller tax credit -- are preferred by Bill Thomas, R.-Calif., the House Ways and Means chairperson. The ERIC official says that conferees may want to address those larger issues first -- unless they decide not to deal with them at all and strip the tax credit proposal from the bill.

While NAM is concerned about the COBRA tax credit, Trautwein noted that the group would not want to see TAA fail as a result of its inclusion. However, the group will continue to seek changes to the proposal as it goes through conference committee. There, the question will be "whether you can get the House to agree on a package with health care provisions, and the Senate to agree on one without such provisions," he said. While providing for the COBRA tax credit is not a "deal breaker" regarding NAM's approval of the general TAA concept, Trautwein added that NAM "would shed nary a tear if the tax credit is removed, as long as TAA goes forward."

Excerpted from the July 2002 supplement to Mandated Health Benefits -- The COBRA Guide, ©Thompson Publishing Group, Inc., 2002. All rights reserved.

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