Employer pay COBRA

We are laying off about 40 employees during the last week of November, who will then lose insurance coverage for all of December and January. (We will rehire in January, so they will be covered again starting in February.) This is the first time we've had to lay staff off at this time of the year, and we are trying to figure out a way to help them out, but this is pretty difficult to do since there is very, very little room in the budget.

Can anyone tell me what restrictions or ramifications there would be to offering to pay for COBRA medical coverage for any staff that end up needing medical care over these two months?

I found an article that explained that this is allowed, and that the money is not taxable to the employee as long as the employer pays it directly to the insurer. But the last statement in the article warns that "tax considerations are arguably the least of the employer's concerns. Therefore, before agreeing to such an arrangement, an employer should consider these issues with the assistance of expert counsel." Well, I'm hoping you all could give me some advice.

THANKS!!!


Comments

  • 5 Comments sorted by Votes Date Added
  • I have limited experience in this area, so another responder may be more well versed. However, I would be less concerned about the tax ramifications and more concerned about potential discrimination issues with the manner in which you are proposing to exercise the Cobra. I truly don't know if chosing Cobra for those who need it is legal or not, but it sounds very risky.

    Are you sure that your insurance company will reinstate all eligible workers upon their rehire? Does your company propose any criteria other than need for health insurance on selecting who will or will not get company-pd Cobra, i.e., what constitutes need? Need for Rx? Illness or injury that needs medical attention? Wellness check?

    I'm curious to hear from others.
  • In thinking your situation over for another second, your group benefits plan cannot discriminate on the basis of medical history. I really don't see how you'll survive a challenge successfully if a 'healthy' person happens to complain. Also, it seems as if your claims history will be skewed.

    Again, I think your primary focus should be on potential discriminatory administration and not tax ramifications.
  • Yes, I've told my boss that it seems discriminatory. And he's finally agreed, but we are still wondering about any other restrictions or rules against doing this for ALL the laid-off staff (if we can't afford it this year, hopefully we can next year).

    The article about tax consequences was pretty much the only info I could find about it. And that's really why I've posted the question, because I'm sure there has to be other issues that come into play here.

    Thanks for the feedback stilldazed! I always appreciate the advise of forum members!!

  • The cost to the company should not be taxable to the workers, any more than your company's contributions to their health insurance is taxable. Paying the cost of their Cobra premium is not compensation for their services, and you won't be cutting checks to the workers. My suggestion is to adjust your policy to allow for your workers to continue on your group health plan during periods of inactivity (say up to 2 or 3 months). Clear with your insurance company that you will have a change in policy and will continue to pay the cost of the workers' healthcare costs. Don't drop them from the group, hence the invoice, and continue to pay the invoice as if the workers are actively working. A key might be to identify criteria under which the workers would remain participants in the group, and your policy would identify the lay-off periods as approved--which your insurance will likely accept as long as you are willing to pay the costs and accept the claims history that might develop. Your proposal is a very generous offer.

    best wishes.
  • I know this is older but my question is, if you start paying the Cobra for an employee, and only intend for it to be until they are re-hired, (2 months) what if they decide not to come back to work for you? Are you then obligated to pay beyond that 2 months? Seems like there would have to be some pretty specific language to prevent someone from trying to force you to pay the whole period eligible.


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