So I learned from our HR Director that the new stimulus plan has a provision related to COBRA. For those of you who don't know about this, when an employee is terminated by the employer and the employee has medical coverage through our benefit plan, we have to offer the employee the chance to continue their coverage for 18 months at a set monthly premium (usually higher than they were paying as an employee). However, the employee has only 30 days to make this election.
Our company, like many others, is self-insured. This means that every claim made by the employee under the medical plan is paid for by the company. So the more the plan gets used, the more cash we have to use. Also like many other companies, we require the employee to pay a montly "premium" for their coverage. The premium typically only pays for a small portion of the claims made. So for example, if the total claims made in a year were $1,000,000, the employee's premiums would have paid for $200,000 of this and the company would have paid for the other $800,000.
Now to the stimulus bill. This legislation states that all employees that we let go between Sep 1, 2008 and Dec 31, 2009 now have the opprotunity to elect the COBRA coverage at 35% of what we normally charge for this benefit (this includes employees that have already declined the coverage in the last 6 months). So, if the employee would have normally paid $300 a month, they now get to pay only $105 per month. However, the government will give us a payroll tax credit for the difference. Ok, so the company is whole right? Wrong. First the payroll tax credit is only for 9 months, yet the employee gets to keep COBRA insurance for 18 months. Second, this bill does not cover the additional claims we will have to pay for. So now we will have more ex-employee elect COBRA coverage. Sounds great, right? Yes it does, except that employee that is paying us $105 per month and has a major surgery that costs $80,000 will cost our company $78,000 of money we don't have.