The sticky, tricky details of COBRA subsidies
April 2, 2009 by Jim GiulianoPosted in: COBRA, Communication, Employment law, Health care, In this week's e-newsletter, Latest News & Views, Terminations
Now that the COBRA subsidy law is on the books, HR managers, employees and insurance carriers are starting to see some details in the law that present problems no one ever figured on.
Under traditional COBRA law, ex-employees were entitled to buy health insurance for 102% of the employer’s actual cost. Now, eligible ex-employees from companies with 20 or more workers can buy nine months of health insurance from their ex-employer at only 35% of the cost. The employer will pay the other 65% and get a tax credit for the amount. That much is clear.
Here are four situations that are unclear — and that you should watch for:
- The law doesn’t specify how the payments will be made to or negotiated with the insurance companies. So an insurance company will have to negotiate with each employer it covers to work out payment arrangements.
- The new law says an unemployed worker whose modified adjusted gross income in 2009 exceeds $125,000 (or $250,000 if part of a couple filing jointly) has to pay back some or all of the subsidy through what the IRS calls “an additional tax.” The payback rate hits 100% for incomes of $145,000 (single) or $290,000 (joint filers). Do HR managers need to inform ex-employees about that provision? No one’s sure, but ex-workers in those categories who don’t realize the problem until tax time are going to be unhappy.
- The 65% subsidy does not apply to an ex-worker’s ex-spouse, who is allowed to buy COBRA benefits at 102% of the premium cost for 36 months after a divorce. But the new law requires that the ex-spouse also be notified of the benefits subsidy. A lot of ex-spouses who receive notice are going to think they’re eligible for the subsidy, so you’ll have to be careful about your notifications to people in that situation.
- A 2002 law provides a 65% COBRA subsidy called the Health Coverage Tax Credit for workers who lose their jobs due to foreign competition. The Recovery Act actually boosted that subsidy to 80%, raising the possibility that qualifying newly departing workers might be confused and elect the option that saves them less.
Tags: COBRA, department of labor, Health Coverage Tax Credit, HR, subsidy
April 6th, 2009 at 12:37 pm
Another fine example of our government doing their best. This is what happens when we elect people that have never run or been in business. They let others worry about the details. I thought this president said he was going to make government work smarter. I still waiting to see it.
April 6th, 2009 at 1:15 pm
MF: Geez, this new government has only been in place less than 3 months. It will take some time to turn things around. Give it a chance. You respond to EVERY article by bashing the new government. I’m not saying that everything is/will be perfect, but we’re not going to see much of a difference immediately. We can’t blame this government for not being able to fix YEARS of mistakes in just three months. You said yourself, “We” elected these people. “We” means the majority of the people in this country. The majority would like to let them at least try to straighten things out.
April 6th, 2009 at 1:50 pm
Kudos to you, JC. This administration inherited a big mess. It took time for it to get this bad, and it’ll take time to straighten it out. Let’s at least give these new legislators a chance. At least they are trying, versus sitting back on their laurels watching it get worse…
April 6th, 2009 at 2:04 pm
JC: To paraphrase Shakespeare, “Methinks thou doest protest too much”. The branch of government that passes legislation which becomes law (Congress) has had ample opportunity to correct “YEARS of mistakes”. At the start of the 110th Congress, the average member of the House had been in office 10.4 years (5.1 terms) and the average Senator had been there 12.8 years (slightly over 2 terms). They are part of the problem, not part of the solution.
April 6th, 2009 at 2:32 pm
Thank you Tom. 100% correct. Time that truth makes it to the surface instead of fiction.
April 6th, 2009 at 2:44 pm
I call BS. The new COBRA legislation was pushed through after Jan. 20. The previous admin. had nothing to do with it.
April 6th, 2009 at 3:20 pm
Not to mention, Congress is pretty much Democrat.
April 6th, 2009 at 3:33 pm
Ok, so Congress and the House have been in office for at least 10 years, and it was primarily Republican for most of that time. I absolutely agree that they’re part of the problem. So why is everyone so quick to blame the new administration of less than 90 days for all of the problems? Problems like these don’t arise overnight. Nor will they be fixed that quickly either.
Of course the new COBRA legislation was pushed through after Jan. 20. The new administration is just trying to make things a little more bearable for all of the people that they knew would become unemployed due to this recession that we are in. Are you going to blame the entire recession on the new administration now?
April 6th, 2009 at 3:53 pm
Thank you, JC. Well said.
April 6th, 2009 at 5:31 pm
Regarding the COBRA, I have two individuals who were involuntarily terminated, one who was sleeping in a clients vehicle and the other was a habitual no call-no show, they get the Government to provide 65% of their COBRA. What about us, the hardworkers, who is helping us pay 65% of our health ins premium?? Effective June 1, 2009, my health insurance premium is increased to $9900.00 a year or $825.00 a month, a 18.36% increase. I only go to the doctor once or twice a year and this is absolutely ridiculous……
April 6th, 2009 at 6:36 pm
It’s to bad that these forums end up being used for political agendas, rather than addressing the problems, regardless of which “side” you’re on. The COBRA subsidies arenow in placel; let’s try and help each other figure out how to deal with it going forward instead of placing blame on anyone!
April 6th, 2009 at 6:36 pm
sorry for the typos above.
April 6th, 2009 at 6:41 pm
Our company of 15 or so employees has relationship with ADP/Totalsource. We are essentially now leased employees, so payroll & W2s say ADPTotalsource. Our handbook, etc, all reflect policies of original company. Payroll & HR are outsourced to ADP/TS.
Although there are many Totalsource employees in So Cal, I heard that laws pertain to us as if we were still just 15-employee operation for FMLA purposes.
Does the new Cobra subsidy law pertain to us? Thanks!
April 7th, 2009 at 8:16 am
Thank you JM – I used to find these forums helpful, but I’ve gotten really tired of reading through all the political rhetoric to find the helpful comments and real information that I find useful.
MF – please do us all a favor and just stop. Clearly you have too much time on your hands and you are making the HR profession look bad.
April 7th, 2009 at 10:51 am
(I thank you too, JM)
Kathy, we were with a PEO for a couple of years. Once we terminated our contract with them, we were again considered a viable employer. Right now, you are indeed “leased” employees, and ADP/Totalsource is the “employer of record.” That means they take care of all of the employer responsibilities. I know that California is often an exception when it comes to regs, so check with your state to be sure; but my own experience with a PEO taught me that compliance with FMLA is the responsibility of the employer, which in your case is ADP/Totalsource.
One thing to beware of though: in Texas, when we were leased employees, we ceased to exist in the world of unemployment taxes – our account was dormant. When we were no longer under the PEO, we ended up owing back taxes to cover unemployment benefits that were paid on our behalf to former employees (those who were employed by us PRIOR TO the time we became leased employees). Just something to think about.
April 9th, 2009 at 11:01 am
In response to DLK’s concern about involuntarily terminated employees for cause, my understanding of the subsidy is that you do not have to offer it to employees terminated for ‘gross misconduct’. I have been unable to get any agency to define gross misconduct. They all said that is the employers call. We do not terminate employees unless they have violated company policy, hence in our eyes, gross misconduct. On the other hand sometimes managers do not document correctly and the employee may be given unemployment benefits. Can anyone share with me what they consider gross misconduct and if you would offer the subsidy to the employees who got unemployment even though they violated company policy?
April 10th, 2009 at 4:40 pm
Based on information provided by DOL, the two employees DLK referenced above would be eligible for the COBRA subsidy. In most cases, DOL is hesitant to apply the “gross misconduct” exclusion unless you press charges and the employee is convicted. In most cases, it is not worthwhile.
Note that in addition to working employees who do not get health insurance premium relief, neither would the family of a deceased or disabled employee because that employee was not “involuntarily terminated.”
April 13th, 2009 at 7:27 am
DC – TG gave you good advice. A little more in depth:
The attorney we work with explained that it is a very high threshold to determine “gross misconduct.” Mere voliations of a policy such as attendance, etc. would not be considered gross misconduct. He said theft or something severe like that would, but that it probabaly still wouldn’t be worth the trouble to have to defend it if challenged.
We were encouarged to send the notices to all involuntary terminations so as not to possibly be cited later for failing to do so. I have an employee who seems likely to sue for wrongful termination. If they were to win (Lord forbid) we would have been wrong not to offer the subsidy by the deadline.