The government might have enacted new COBRA subsidies with the
best of intentions, but they will be an administrative burden for small businesses like veterinary practices, some experts say.
"It is going to be time-consuming, and it is going to be
expensive, and it is going to be onerous,” predicts Marsha Heinke, DVM, CPA and owner of a management
consulting firm in Grafton, Ohio.
The federal government’s
economic stimulus package, the American Recovery and Reinvestment Act
of 2009, changed the rules of the COBRA program, which provides
18 months of continued medical insurance coverage for laid-off employees. Now most who receive COBRA
coverage can get a 65-percent subsidy from the government for nine months, the new rules state.
The subsidy applies to anyone laid off between Sept. 1, 2008 and Dec. 13, 2009.
problem is that employers who have let someone go are required to
contact that person and inform them that the subsidy is available, even
if the former employee previously declined COBRA medical insurance
That means the employer needs to know or find out where that
person is even if it takes some searching, experts say.
to the legislation, the former employee is eligible for the subsidy
starting in the first coverage period after Feb. 15.
Employers have 60 days from mid-February to contact all employees who have been
involuntarily terminated since Sept. 1 to tell them about the
subsidy, according to the law.
What makes things worse, Heinke says, is that the government is going
to reimburse employers using tax credits on end-of-quarter payroll tax
The IRS released information
to help employers understand the new system.
now, most veterinarians, as small employers, did not pay for COBRA. Instead, laid-off worker bore the cost of ongoing
coverage if they elected for it, Heinke says. Those former veterinary
employees who took it generally paid the practice or a
COBRA administrator to continue their coverage
on a month-to-month basis. In general, employers charge the maximum
amount allowed by law: 100 percent of the premium plus a 2-percent surcharge to
compensate for the administrative burden.
But according to the subsidy
plan, laid-off employees now pay just 35 percent, and the former
employer gets reimbursed via a payroll tax break. That
means the employer now fronts 65 percent of the cost and waits for the government's reimbursement.
now have to pay the money out of their cash flow, and their cash flow
is already significantly challenged in the current economic crisis,” Heinke says.
Heinke and others expect that many who turned down
COBRA coverage before because it was too expensive now might change their minds. The average cost of medical insurance is
estimated at $400 a month for an individual and $1,200 a month for a
Moreover, sick individuals are going to be the most likely to accept the new deal, which could
drive up premiums for some.
“All the people who opted out of COBRA before, they are going to be rethinking their decisions," Heinke predicts.
federal COBRA law applies only to businesses with 20 or more employees.
But Edward I. Leeds, an attorney who practices business law, notes
that many states have their own COBRA laws to pick up employers with
fewer employees, and that group would include many veterinary practices.
legislation makes it clear that the subsidy applies to these
businesses, based on the state's say-so. The only difference is that
insurers will be responsible for carrying the 65-percent subsidy until
reimbursed, not the former employer, says Leeds, of Philadelphia-based
Andrews and Ingersoll, LLP.
While that makes it easier for employers, it does not mean they are spared
administrative hassles that include contacting eligible former
or possibly providing additional, more detailed
information to insurance companies.
Their premiums, too, may go up, Leeds adds.
general, people who take the COBRA coverage are those people who need
the coverage,” he says. “It will probably make premiums go up a little
bit, but it is hard to say.”
The subsidy only applies to those who make less than $125,000 a year for an individual and less than $250,000 for a family.
may might to wait a few weeks, but then they should contact the
they work with — especially if they are affected by a state COBRA — to
find out what new requirements those insurers are going to have,
“Probably the insurers are waiting for guidance right now. But come mid-March you might want to give them a call," he says.