How This Bill Costs Employers
Published on February 21, 2009 By zorven In Politics

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.


Comments (Page 2)
2 Pages1 2 
on Feb 22, 2009

I'm guessing here, but I'd say he meant that nobody should 'provide' it, on the basis of the immutable law of economics that goes something like 'Subsidize something and demand for it will grow.'  Then again, it's possible he meant that government should be providing health care, to which the same law of economics would apply.

on Feb 23, 2009

No, I would have the company cut costs other ways instead of firing employees, meaning they don't become bankrupt. Redundancies are a short term measure, not a long term one.

Yea, lets buy less toilet paper, cut back on coffee machines and make sure not to accidentally print the same page more than once so as to not throw away paper. Do you not think companies try to cut back before firing people for the same reasons you mentioned (having to rehire and retrain)? My company, 3rd largest cement company in the world, has made many, many cut backs but they were still forced to lay people off. In a little over a month they will consider more lay-offs but many of us offered to have our hours cut from 40 hour weeks to 37.5 hour weeks to avoid someone losing their job but that may not be enough.

You make it seem as if every company that fires people would rather let people go than give up their gourmet coffee or, expensive lunches and ballpoint pens with the gel grips.

When the recovery starts you'll be regretting firing some of that talent and having to go through the costs of retraining staff, while the company who got their employees to accept a pay cut or work fewer hours will be laughing at you - why do some people on JU only think their opinions half way through?

When recovery starts they will be happy to hire people again. At this point so much money has been lost that paying to rehire and retrain people to make money again will be worth it. But how could that happen if companies try to weather the economical storm in the hopes to still be standing once it's over without firing anyone but may not survive?

Your problem is you seem to think that the employees are the priority for every business when the reality is the priority is the business for those who own these businesses have much more to lose if their business goes under than those who lose their jobs. Employess have bills, houses and car payments, but employers have bills, houses, cars, the business and all the money invested in it. Get a clue dude.

BTW, your attempt to use my own words against me failed. Better luck next time, thinking your opinions thru.

on Feb 23, 2009

This is just one step toward socialized medicine.  We're slippin' on the slope!

Think of a large picture of this one- The Big 3.  Just GM alone is asking for 30 Billion in Federal Aid.  They plan to lay off 47,000 people.  Say only 10,000 of those are in the US.  They now have to pay the upfront costs of 65% of those 10,000 employee's COBRA, then wait for the tax return on it.  How does that help keep the company afloat?  Why don't we just keep stickin' it to the businesses until NOBODY can afford to stay in business?  This isn't the way to strengthen this country.

on Feb 23, 2009

Yea, lets buy less toilet paper, cut back on coffee machines and make sure not to accidentally print the same page more than once so as to not throw away paper...When recovery starts they will be happy to hire people again. At this point so much money has been lost that paying to rehire and retrain people to make money again will be worth it.

Either you don't understand, or you didn't read what I posted. Here's it spelled out: 3 companies, all suffering due to the recession, and wanting to cut costs:

Company A: Fires 20% of their staff. When the recession is over they have to start hiring new people, spending money training them up, etc., and also have a time lag due to not being as easily able to meet an increase in demand due to the upturn as a company who kept all the employees.

Company B: Gets workers to work 20% less (for 20% less), meaning they save roughly the same amount in costs (depending on how many fixed benefits they have per employee, which could always be adapted to have the same proportionate decrease as would be achieved via firings), yet when the upturn arrives they can easily meet the increase in demand, and have retained their experienced worker base and don't have to worry about  training etc. They also benefit from improved morale since they are less worried about losing their job (your typical person is risk averse and hence would prefer a 100% chance of losing 20% of pay to a 20% chance of losing 100% of pay, and that's before factoring in that it's far easier to cope on 20% less pay than 100% less pay which would further weight the results).

Company C: Gets workers to accept a 15% pay cut and a 10% cut in the amount they work. They don't save quite as much in costs, but they're also able to make more/provide a better service, and proportionately their workers are cheaper. As with B, when the upturn arrives, they're in a much better position. As with B morale won't be as bad as at A.

So the companies that looked to alternatives to firing people will be expected to do better than the company that just fired staff - that is, they're probably as likely to go under, but if they don't then B+C would perform better than A, all else equal.

You even mentioned yourself that workers at your company are offering a cut in hours worked to prevent firings.

on Feb 23, 2009

If scenarios B & C are realistic, why have there been any layoffs at all?

Methinks there is more to it than these canned, oversimplified scenarios.  Just out of curiosity, do you have a business degree, aeortor?

on Feb 24, 2009

If scenarios B & C are realistic, why have there been any layoffs at all?

A good question - I can think of several possible reasons. Firstly you might have unions who oppose pay cuts and working hour cuts which forces the company to fire people (which would also probably be opposed by the union). Legal complications could also affect things - you might not be able to change a workers employment contact straight away, but you might be able to fire them straight away.

If workers are required to favour the cut in hours/pay instead of firings, you could also have the problem with imperfect information, where each employee thinks that they're amazing, and so wouldn't get fired if 20% of people were made redundant, meaning that the employees prefer the firing program to the alternative, even after factoring in risk aversion etc.; Similarly the company might fire people who were just good enough to employ before the recession, but are still significantly worse than everyone else, such that it's better to fire them than cut everyones hours (although this can create other risks - e.g. everyone suddenly becomes interested in looking good rather than working well as a team).

Also of course you can have poor management - when firms look to cut payroll costs, they may instinctively lean towards firing people instead of pursuing other methods. Therefore government legislation that makes it harder to fire people but easier to cut their hours/pay (e.g. force firms to give staff a payoff if firing them, but restrict unions ability to strike if a firm cuts employees hours by a moderate to small level, or say force companies to offer medical insurance to ex-employees at a discount).

Methinks there is more to it than these canned, oversimplified scenarios

Feel free to look at any of the real world examples out there (there are plenty). However I needed to simplify things since Charles seemed intent on misinterpreting/misunderstanding me.

do you have a business degree

No

on Feb 24, 2009

do you have a business degree


No

Good.  Then my opinion is just as worthless as yours.

on Feb 25, 2009

Good.  Then my opinion is just as worthless as yours

Well a good argument shouldn't need credentials to make it worthwhile, just as a lack of credentials shouldn't make an argument(/opinion) worthless.

2 Pages1 2