COBRA: Good for Workers; Trouble for Small Businesses
A provision designed to provide laid-off workers with health care coverage could create big headaches for small businesses, experts say.
The COBRA program allows employees to pay for continued coverage under a group health plan. While it's a less expensive option than purchasing coverage independently, the premiums still aren't cheap. The stimulus bill offers subsidized COBRA coverage to employees let go between September 2008 and December 2009, and the federal government will foot 65 percent of the bill for up to nine months. Even employees who initially turned down COBRA will be able to opt in under the changes.
But the burden for administering the subsidy will fall largely on employers, who'll also have to front the cash.
The law requires businesses to notify all eligible former employees, even those fired for cause, by April 18, 2009. Even companies with insurance brokers will still need to provide them with names and contact information. Businesses can then sort through which respondents actually qualify for extended coverage.
"Err on the side of notifying, and then whoever doesn't qualify, doesn't qualify," said John J. Matteo, chair of Washington, D.C.-based firm Jackson and Campbell's business and employment law practice groups.
He added that companies should be sure to send the correct kind of notice (there are three types) and those with third-party administrators should make sure that the notices are sent out. He also stressed that businesses not already required to offer COBRA—including those with fewer than 20 employees—won't be affected.
Employers are also obligated to cover the 65 percent discount, which the federal government will later reimburse through payroll tax credits. For troubled businesses that have already been through major layoffs, this could be a painful hit, according to Noelle Tate, the human resources director at Hoboken, New Jersey-based payroll firm Priority Pay.
"For the employees, it's an amazing discount, and so I expect a lot of them will be taking advantage. If a lot of people have been laid off or terminated, it could be very expensive," said.
"It's a lot of money to put out, especially for those already having trouble staying afloat," she added.
Businesses should also be sure to keep good records of every notice sent, she advised.