President Obama’s $787 billion stimulus package that was recently signed into law included a subsidy for COBRA coverage. This new subsidy allows employees who have been terminated to receive COBRA coverage at a 65% reduction in cost. Although the plan has its pluses and its minuses, the bottom line is that there is still a great deal of clarifying of details to be done.
The plan was placed into legislation without the finer details being worked out completely and there will no doubt be many amendments and further details to be released. In the meantime, there are some details and points to keep in mind concerning the new COBRA law.
Employers and employees alike need to be aware of the nuances of this package and how it affects each of them. The HR TrainingCenter.com simplifies the provisions that need to be looked at by both parties concerning the new law. These points include
The COBRA package only covers involuntary terminations;
Employees who are covered by or eligible to be covered by a spouse’s plan are not covered;
The coverage is retroactive to last year;
The federal credit declines according to income levels;
Employees who opted not to be covered by COBRA now have and added 60 days to decide.
Employers have a more difficult and possibly financially difficult list of steps to make sure they are covering to put this new policy in place. According to the Professional Services Management Journal (PSMJ), April, 2009 edition, employers, while waiting on additional clarification of the law, should begin with these steps:
Determine who is eligible, including verifying spousal insurances for possible eligibility;
Set up a tracking system (a spreadsheet will suffice) for keeping tabs on what you pay COBRA and what the employer pays you. You will need this to determine the tax credit due to your company;
Review and reformulate your estimated tax payments to reflect your reduction for the COBRA credit.
Although COBRA plan is very beneficial to employees in need of medical coverage and it is being subsidized by the government, there is a caveat that could cause some businesses to see an impact on their cash flow.
Because it is paid back to companies as a tax credit, companies will have to pay the insurance costs up front and be paid back in the form of federal income tax return payments. For companies who are struggling through these harsh economic times, this could be an added burden.
This plan is sure to receive some overhauls and amendments, possibly to keep from having it become an economic hardship on businesses. HR departments should be monitoring the news and other HR websites for updates to the COBRA law and clarification of the issues at hand.
Sharon Chapman - Writing has been a passion of mine for as far back as I can remember. There are at least two novels floating around in my head waiting to ...
