Economic Stimulus Package Includes Health-Related Provisions

On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act, commonly referred to as the economic stimulus package. The act includes a number of provisions related to health care. COBRA continuation coverage and new standards for health information technology will generate increased administrative costs for employers.

The act appropriates $21.4 billion for premium subsidies for COBRA continuation coverage for unemployed workers. This money will provide a 65% subsidy of premiums for up to 9 months for eligible workers. It will be administered through a mechanism that allows employers (or health plans if they administer COBRA benefits) to receive a credit against payroll taxes. Individuals with annual incomes above $125,000 (single) or $250,000 (couples) are not eligible for the subsidy. Plan sponsors do not need to worry about enforcing these limits because any excess subsidies will be recovered via individual income tax returns.

To be eligible for the premium subsidy, an employee must be involuntarily terminated between September 1, 2008 and December 31, 2009. The subsidy is not retroactive. The subsidy begins March 1, 2009.

The subsidy applies to state health care continuation laws, as well as federal COBRA. It does not apply to flexible spending accounts. The subsidy applies to premiums for dependent coverage, in addition to employee-only coverage. If a plan sponsor allows someone on COBRA to change to a less expensive plan, the subsidy will apply to the less expensive plan.

The individual must pay and the plan must collect 35% of the premium before applying for the subsidy. The employer will need to advance the 65%, then recover the subsidy by taking a credit on its payroll taxes. If the subsidy exceeds the taxes due, the employer or plan will need to handle the situation in the same way as if it had overpaid its taxes.

Because it will be difficult for plan sponsors to implement these provisions as early as March and April, the act includes transition provisions that allow employers who receive full premiums from assistance-eligible continuees to refund the subsidy or use it as a credit against future premiums.

The subsidy will be difficult for multiemployer plans to recover because they are not responsible for income taxes and FICA payments. On the other hand, many multiemployer plans base coverage on an hour bank and union members do not usually lose coverage due to termination, but due to a reduction in hours. Therefore, many union members covered by multiemployer plans will not be eligible for the subsidy.

The subsidy will end when an individual is offered other group coverage or becomes eligible for Medicare. These rules are different than the rules for terminating COBRA coverage, which require that the individual actually become covered by another group health plan or Medicare.

The federal agencies responsible for administering COBRA have 30 days to release new model notices that reflect the subsidy. Plan sponsors will have 60 days from the date the act was signed to distribute the notices. Qualified beneficiaries who had not already elected COBRA will have another 60-day election period. Coverage does not need to be retroactive. The new coverage can be effective March 1, 2009, but there may be a gap in coverage that could mean that pre-existing conditions exclusions might apply in the future.

The act also appropriates $19 billion for the adoption and use of health information technology. Included among these provisions are ones that:

• Codify the Office of the National Coordinator for Health Information Technology (ONCHIT) and establish an open and transparent process led by the National Coordinator to develop standards by 2010 that allow for secure nationwide electronic exchange of health information.
• Provide $2 billion in immediate funding for health information technology infrastructure, training, dissemination of best practices, telemedicine, inclusion of health information technology in clinical education, and state grants to promote health information technology.
• Expand current federal privacy and security protections for health information such as requiring that an individual be notified if there is an unauthorized disclosure or use of their health information and requiring a patient’s permission to use their personal health information for marketing purposes.
• Invest in the adoption and use of health IT, such as electronic health records by providers who serve Medicare and Medicaid patients.
• Provide temporary bonus payments ranging from $44,000 to $64,000 for physicians and up to $11 million for hospitals that meaningfully use electronic health records.
• Phase-in Medicare payment penalties for those physicians and hospitals not using electronic health records starting in 2014.