Paying for COBRA: Obama’s plans for ‘09
January 12, 2009 by Kerry IsbergPosted in: Employment law, In this week's e-newsletter, Latest News & Views, Money, Pay and benefits, policies
If the Obama Administration gets its way, Accounting’s job will soon expand beyond just removing names of laid-off employees from the payroll system.
The economic stimulus package now under construction in Washington will almost certainly include subsidies to help people continue their health insurance after being terminated. Typically, workers can do this through COBRA benefits for up to 18 months, but at a price that’s cost prohibitive for the newly unemployed person who doesn’t know from where – or when – that next paycheck’s coming.
In fact, Families USA, a consumer health organization, just released a report saying that the average national premium costs for family COBRA coverage consume almost 84% of average unemployment benefits.
To keep people insured at a time when they most need it, Democratic lawmakers want to provide employers who pay part of the premiums for their unemployed workers with a tax credit. This credit would be offset against payroll taxes and reported on Form 941, Employer’s Quarterly Federal Tax Return.
In some respects, lawmakers know this type of program works. In Massachusetts, for instance, the law provides subsidies of up to 80% of COBRA premiums for the unemployed. These benefits are funded by a dedicated employer payroll tax.
The assumption, though, is that any federal funding that’s made available would replace state subsidies such as Massachusetts’ program.
Tags: Accounting, COBRA, obama, Payroll
January 19th, 2009 at 11:01 am
Massachusetts? Really? The same Massachusetts that’s experiencing financial difficulty at the state level, in part because of it’s entitlement programs. That’s what chosen as an example of a program that ‘works’?
January 19th, 2009 at 1:18 pm
The nanny state marches on.
January 19th, 2009 at 1:52 pm
Some employers will just drop Medical Insurance from everybody. The cost will be to high for small companies, subsidies or not!
January 19th, 2009 at 4:12 pm
The country as a whole is in an economic turmoil. Where do they think small businesses are? As for Mass. being an example of providing insurance coverage checkout how much they take from personal income taxes. There s a reason people in New HAmpshire refer to the State as Taxachussetts.
January 26th, 2009 at 1:26 pm
It doesn’t sound like this will be required for a company to do, but rather that the government will reward companies that do this with a tax credit.
January 30th, 2009 at 12:16 pm
It sounds like (at least in “Taxachussetts”) that all employers are required to pay an additional payroll tax to cover this “benefit”. So if you are already paying more in taxes for this, why would you not avail yourself of this “benefit” that you can use to market to employees?
Yes, I understand the societal rationale behind wanting to have a program like this, but when you keep nickel and diming employers this way, eventually the whole dollar is gone. Businesses tend to locate where they will get the most advantageous results for the price paid (cost/benefit return). If it becomes too expensive to operate in one state, they will relocate to another. If it becomes too expensive to operate in the US, they will take their business operations elsewhere.
Maybe, just maybe, if people had taken that $3500 they spent on an HDTV or the $40000 they spent on a Lexus or BMW, or the $75/month they spend on the cell phone service, or the $100/month they spend on cable, or the $20/week they spend on Starbuck coffee and put that into savings or short-term investments, they would have something to fall back on/use to pay insurance premiums if they get unemployed. There is not a person I know who can’t cut back on some comfort spending to save for hard times. For those who really are destitute, there are already programs/laws to cover critical medical events.
February 1st, 2009 at 3:15 pm
I’m not saying increasing cost to businesses is this is the best idea in the world. It’s a stopgap that could cause more businesses to move. The alternative isn’t so great either. Some of us lost our job and Literally 25% of our savings due to the economy. How about those of us who were thoughtfully (following the best advice available to us) putting away for retirement or a rainy day. We were just making it by in the first place. Can’t take the money out of our 401k or we suffer large IRS penalties. The market is down so there isn’t as much to take out anyway.
Without Health care I could pay $10,000 year for Betaseron.
2400 month — Working Pre-tax
1200 month — After getting laid off Pre-tax
1054 month — After Taxes
204 month — After Cobra
-200 month — After Heat
-40 month — After Eligible for food stamps (don’t know if I am yet)
-140 month — After No Fault insurance (Hope my car doesn’t break down)
-540 month — After Rent mortgage (Even at a really good price)
-580 month — After phone bill (Try to get a job without a phone)
The list could easily go on. I don’t have a good solution. I’m trying to get a better education. Unemployment even makes that tough because they may deny you benefits for going to school unless the program specifically fits their guidlines. How can you better yourself without school? Even McDonalds isn’t doing a lot of hiring right now. My 401k could last me a year with no frills. I’d have to start all over and put in twice as much once I find a new job so I could retire. I might end up disabled before before retirement Because of the Multiple Sclerosis so I better put triple into my retirement. Oops sorry I can’t do that either because of tax penalties.
The economy goes through cycles. I need a little welfare right now, but that isn’t going to fix anything. We new a new direction as a nation. We can be more resourceful then we are right now.
I’m not gonna let it bother me. It’s nice to occasionally go on a rant. FYI This is still the best nation in the world in my opinion. Those of us with the worst lives live better then people in most of the world. We live better then our parent or their parents.
February 3rd, 2009 at 6:05 am
[...] their healthcare benefits. Here are some new details of the “tax credit” (See “Paying for COBRA: Obama’s plans for 2009“), which is expected to be finalized and signed by the President within a few [...]
February 9th, 2009 at 5:21 pm
Kay, that might be fine for a lot of professionals and white collar/dual income families. I agree that many of them spend far too much on items that are not absolutely necessary. Planned savings should be part of any budget.
Our company has a majority of office and maintenance personnel earning between $8 & $12 per hour. If it is a single employee without kids, they aren’t going to qualify for the programs you say are out there. Our lowest cost employee only medical coverage would cost $544 as COBRA per month. Someone earning even as high as $12 per hour has a limit to what they can save or cut back on. These are not the people buying the big screen tv’s. With a minimum COBRA cost of $544 per month when becoming unemployed, it is the difference between them taking the coverage or living in their car which I have seen happen.
I do not think forcing companies to cover 65% of the COBRA costs for a former employee is an appropriate answer to the problem. All it is going to do is increase costs for coverage for active employees. They are the ones that will bear the burden. How much more in taxes and benefit costs can the average person bear? How much more can the average employer bear.
I guarantee I will be looking much closer at our company’s rights to not offer COBRA due to gross misconduct if we are forced to pay such a high percentage of terminated employee’s costs for health coverage.
Patricia
February 20th, 2009 at 12:28 am
Jim,
I am in the same boat as you, except my COBRA payment is over $450 per month. I also have MS and the meds are so expensive, but I cannot go without some sort of healthcare.
Kathy
February 20th, 2009 at 3:45 pm
I actually think this is a good thing. I think it may have a trickle down effect. The entities that need to be effected by this are the health insurance companies and HMO’s and pharm companies. There is no need for the cost of health care to be as high as it is. It’s higher in the US than anywhere else. The health insurance and pharm industries are doing what the mortgage companies and banks are doing- milking the economy dry. Businesses are going to do several things. First they are going to curse and protest this bill and say that it’s crazy. Then they are going to insist that health insurance companies lower their costs so that businesses can insure employees affordably. Hopefully there will be such an uproar that these companies will be held accountable. There has been no evidence to support the reason for the exorbitant cost of healthcare. It’s greed. I think its good that something is happening at all. How many times in history or in anyones life do things get done absolutely correctly the first time around (congress is doing this for the very first time). Hence this bill. I think it’s good that the ball is rolling and eventually the entities really at fault here will be affected. Businesses will do all that is necessary to survive and avoid the pain they will encounter. These messages will go back to congress and hopefully congress will act accordingly. How often have laws been enacted that have hurt the “little man” with no power and no voice? Businesses have power and voices. If this had been a different party/administration, some bill would have been enacted to hurt powerless people? At least this time around something really good could come out of this decision by the government to “ACT”. This is how change begins. People and businesses in this society always want instant gratification and are always so quick to persecute immediately if they can’t have their way and benefit from it. This is how we got to into this situation from the get go. How fair was it that the terminated worker couldn’t afford COBRA in the first place? It was just accepted, if you couldn’t afford it then that’s your problem and you will just have to deal with the consequesces – oh well. This administration is sending the message “not at the individual consumers expense”. The businesses effected by this will find a way to make it work for them via all channels necessary to them. Again, they have the power, authority and voice to make change happen. I feel no pity here. Perhaps companies will re-think their behaviors when they send executives on business retreats to resort islands and arrange for private cars and pay for extravagant, unnecessary extras. Believe me, I am sure that Keane falls in the category of having extravagant expenditures. How dare the government expect them to curb their behavior and help the people that worked to give them a name and give them their business in the first place. Again, I feel no pity here.
February 23rd, 2009 at 11:03 am
I entirely agree with you Janice.
In the past, when employees were let go, they were handed COBRA information and basically told, “good luck”. Now CEO’s are saying this new law is crazy because they actually have to do something for ex-employees. Of all the nerve, right? When I heard about this bill, the first thing I thought about was the parade of good, respected employees who were shown the door in the last few weeks. Why were they shown the door? Because the company didn’t hit its highly set profit margins. So as these people left the building and had their lives ruined, the company simply shaved some expenses and made fewer people do twice the work. Its no longer just, “good luck” and hope you can pay for your kid’s next doctor’s appoitment. So I think it is definitely a step (a small step) in the right direction that now companies must actually consider the cost when releasing employees.
February 25th, 2009 at 12:49 pm
is anyone CLEAR (crystal) on the eligibility cutoff for COBRA reimbursement for small employers?
i have been told it’s 20……unless your state (NY) has set certain other parameters…any help would be appreciated.
March 24th, 2009 at 3:25 am
I agree with Janice as well. Especially since I was just laid off due to my company’s downsizing or “reduction in force program” as they called it.
The real “elephant in the room” that no one is discussing is the fact that health care in this country has, I feel deliberately, not been fixed BECAUSE it’s tied into our jobs. It was set up this way because it’s much easier for the powers that be (and I don’t necessarily mean our government) to control the general population and keep us producing for them by forcing us to employment in order to be able to have healthcare. If everyone had access to healthcare in this country, people would, of course, still work and produce, but we would be working and producing according to OUR own interests, creativity, etc., which I think will make an even better economy for us all. However, that would make us much too free, and much more financially comfortable, for the big business oil companies and corporations’ comfort. These are the entities that truly control things — even our government, and it’s much easier to control the population through fear of job loss that will literally devestate families due to the loss of their health care coverage. Especially, families with children, and people with serious illnesses that need constant medical care. It’s a very powerful tool that they use to keep us in a kind of slavery for them. I’ve heard this called “economic slavery” and I think that’s a good way to view it. Even now, with all of the hoopla over this terrible and shameful healthcare system that we have, a system that will actually let people die because of denied coverage or because they don’t have coverage, these politicians are still trying to improve this situation by keeping employers and insurance corporations in the picture. I applaud the new administration for taking some action and I’m very glad for it. However, I believe this is a very weak bandaid type of solution and much more work needs to be done. Much more radical work that will not be up to our government alone. It’s time for WE THE PEOPLE to roll up our sleeves and get our hands dirty over this issue. We need to wake up and become active. As long as we have to rely on employers and insurance companies for our healthcare — and we will if this is left to politicians alone to fix — these problems will never go away.
April 20th, 2009 at 2:28 pm
Kay and Pat you both have good points.
Agree that something needs to be done but definitely not what this “overspending, fiscal irresponsible” administration is doing”. I thought this is (sorry was) a government for the people and by the people. Understand that we need to make a change, but I don’t think we are looking at the long term affect this will have on our future. Wonder why Obama and congress go by a different set of rules (why don’t they have the same problems with their health insurance?
August 24th, 2009 at 2:09 pm
I see some great ideas represented here. Hopefully all of you will join me in ’speaking up’ to our elected representatives who have been voted into postions to be the voice of american people.
The very principles this country was founded on need to be revived. The american government cannot run healthcare; that has been shown by them trying to run the postal system, the school systyem, etc. It is time the amerivan people get up and get involved! Sitting back commplaining is what got to where we are!Let’s get involved!
August 24th, 2009 at 2:54 pm
Dear Rhea,
I agree this is not the best solution to the problem. Burdening already struggling companies with more expense just causes them to leave the country and go where they can get more for less, or worse yet, just go out of business leaving us to the mercy of mega-companies. I don’t have the answer, but the idea that “people will produce” even without the financial incentive of benefits and healthcare is not accurate either. While YOU may have an inherent desire to contribute, there is a large and growing group of folks who actively seek to do the least possible, even to the point of being fraudulent with Federal programs specifically so they don’t have to contribute.
The socialistic ideals we are moving towards as a nation have bankrupted many a nation before us and will do the same here. It is a wonderful idea that all things be available to all people, but the reality is that it doesn’t work without the resources to support it. Those who produce are those who gain. Caring for those who cannot is not an economic function, but a moral one. Change the values that allow us to pay a football player millions and a teacher nothing, and the rest will resolve itself.
August 24th, 2009 at 3:16 pm
has anyone heard if the Cobra stimulus will be extended in to 2010????
October 15th, 2009 at 11:08 am
I have been trying to find out what will be happening with the Cobra subsidy that President Obama has put in place. My payments are close to $500 per month, and if the subsidy goes away my premiums will be close to $1200 per month which I cannot afford.
Has anyone heard of an extension of the Cobra subsidy.
January 4th, 2010 at 4:24 pm
I was employed with a corporate company for almost 7 years, I was laid off due to medical issues. I was in a car accident last july 09 and i have been under a doctors care ever since. I was laid off after I was laid off they sent me the cobra insurance. For a single women who has taken care of herself since 16 can not afford $544 a month for health insurance without a job, I think its a great law to pass if you qualify but what about those like I who have no choice but to deal with the pain, bill collectors and the constant reminder that i live in america, the land of the free! so why isn’t there free health care for those who truely need it…
January 14th, 2010 at 1:08 pm
Yajaira, Nothing is free. When people say free healthcare, they want it free for themselves. Someone is always paying for it somewhere. To have a “free” healthcare system like several other countries, most people, even those earning lower incomes, pay high income taxes that they wouldn’t pay in this country. If lower income people here had to pay 30-50% of their income to taxes to get a “free” healthcare system in the US, I wonder how many people would be so gung ho for a government controlled system.
Americans need good and affordable healthcare, not insurance.
The entire system is broken. Doctors/hosptial page huge amounts for malpractice insurance because there are no caps on legal damages. Expensive tests that may not be necessary are ordered “just in case” to avoid possible lawsuits. People cannot shop around across state lines for more affordable coverage so carriers have a captive market and consumers must follow state requirements for their coverage; even if they don’t need those services. We can’t buy our drugs from other countries at a much lower cost. Hospitals throw out millions of dollars of unused supplies instead of donating it to clinics because a sealed package was in a patient’s room so it cannot be used because of possible liability issues. Medicare/Medicaid pays far less than private insurance so the costs for employers and those with private insurance skyrocket to make up the difference. Companies charge more to the consumers to cover these costs. Many employers try to make due with fewer people to keep costs down or think twice before hiring a 50+ year old who may be more expensive to insure. So individuals who need the coverage the most have a hard time finding jobs. Lastly, don’t forget fraud.
It is a vicious domino effect. One set of costs are high so individuals, doctors, hospitals, employers and insruance companies try to make up for those high costs from those they do business with and those they employ and the general public. Every cost increase received by any of these groups or individuals is passed along to someone else until it is unaffordable for everyone. Our lowest cost COBRA family coverage is $1600 per month. I don’t claim to know how to fix everything that is broken but I expect that $1600 insurance cost to significantly increase over the next five years. Employers and individuals cannot bear much more expense. I expect to see more and more employers drop insurance and pay the penalties. Our company would save over 2.5 million dollars if we paid the penalties for not providing insurance. How can I suggest our company keep spending millions more? They would be better off giving everyone a decent raise and cancelling medical coverage for the group. We won’t see that happen immediately but if things continue this way, I expect to see in more and more frequently as costs climb for businesses.