COBRA and the Viper

published July, 2009

You probably need to offer continuing Health Insurance to your terminated employees.

Part of the Recovery Act of 2009 to get the economy going involves a change to the rules about COBRA. Workers who have lost their jobs may qualify for a 65% subsidy from the IRS on health insurance premiums for themselves and their families for up to 9 months. COBRA can last 18-36 months, but the subsidy lasts only 9 months. The ex-employees have to pay 35% of the premium to the employer to stay on the health insurance plan, if they were participating when they were terminated. 

People who voluntarily quit are not eligible.

Employees who were terminated “involuntarily” between September 1, 2008 and December 31, 2009 are eligible. The subsidy phases out for singe employees between $125,000 and $145,000 AGI ($250,000 and $290,000 for MFJ). AGI above the phase out is not eligible.

Covered plans include Medical Dental and Vision, but not things like FSA’s.

COBRA stands for Consolidated Omnibus Budget Reconciliation Act (although I call it the “Continuation Of Benefits? Really awesome!”)

The Federal standards are if you have more than 20 employees, but the Very Important Plan for Employee Retention (I just made that up!), also (actually) known as “mini-COBRA” or “Cal-COBRA” in California and 37 other states say 2 or more employees. It doesn’t look like the “viper” is in Arizona or Washington state, but it is in New Mexico, Texas, Virginia and Vermont, just to cover some of the other states I prepare returns for. Check with your state to be sure.

That’s right, 2 employees and you need to provide continued coverage.

The way it works is you, the employer, pay the insurance premium in full each month, your employee reimburses you 35%, and then you take the balance off of your Quarterly Form 941 payment
Here’s a wacky thing or two: to cover administrative costs, an employer can ‘charge’ 102% of the premium federally, but 110% for CA. Federal is 18 months allowed COBRA, but CA is generally 36 months.

For more information