Subsidized COBRA Coverage in Stimulus Plan = Additional Burden for Small Businesses

by Joanna Pineda Posted on March 3, 2009

I got a call from my insurance agent today. He wanted to be sure that I knew about the new COBRA provisions in the stimulus package that went into effect a few weeks ago. The stimulus plan provides subsidized COBRA benefits to workers (and their families) who lose health care coverage because of involuntary termination of employment (read: if they got fired or laid off). This sounds like a wonderful benefit and one that many families will find valuable. But did anyone consider the impact on small businesses?

Under the law, 65% of COBRA premiums will be subsidized by the federal government, with the remaining 35% paid for the former employee.  After receiving the reduced premium from the former employee, the employer or health plan offsets its payroll tax liability by the other 65 percent. If the offset amount does not cover the subsidy, the employer files paperwork with the government to get a refund.

Lots of employee benefits companies are covering this issue, including The Segal Group.  Everyone is talking about the requirements, but did anyone consider the true impact on businesses, especially small businesses? And just think about this: small businesses will be responsible for new paperwork and fronting the COBRA premiums for former employees until they get reimbursed by the government. Yes, employers can offset their payroll tax liability with the COBRA amount but if the offset doesn’t cover the COBRA premium liability, employers are liable for the amount until they get reimbursed, which will probably take months, if we’re lucky.  Dear Mr. Congressman, for a small business that is cash-strapped, this could mean hundreds or thousands of dollars every month!

I’m lucky.  I haven’t had to lay off anyone but I can certainly relate to the small business owner who will go nuts with all this new paperwork and potential liability — during a time when cash is tight.  Could this new law actually lead to more layoffs?  Sheesh.

Neal, my insurance agent said that of the 100 phone calls he’s made to business owners and plan administrators, not one person has said, “oh wow, what a great idea, I’m excited about these new requirements.”

10 replies on “Subsidized COBRA Coverage in Stimulus Plan = Additional Burden for Small Businesses”


The Governmet never thinks about how to implement and administer its new “rules.” Go post..and thanks for the mention!

Listen, I really don’t agree with your complaint. I think employers (including small businesses) and/or health plans should be responsible for the administrative burdens of getting reimbursed by the government. This is a responsibility that should NOT be shouldered by the individual. The individual in this equation has to already be worried about job loss which includes a loss of income AND benefits such as health care. I think employers should take responsibility for laying off employees in a downturn, and this is one of the ways they can do so.

Second, you are being REIMBURSED. This is not a tab you are paying for. The government is picking up the tab. So stop complaining. You are a business. Administration is at the heart of all busines operations. Administration is a large part of all businesses. Please… stop complaining about what you are supposed to do. Or close your business, my friend. If you are not covering the administrative aspects of your business, then you really are not running your business as effectively as you can.

Dear anonymous,

I love it when I strike a nerve! I agree that the individuals who have lost their jobs have a lot to deal with and I think it’s horrible what is happening to industries and jobs around the country. But here are my top complaints about this provision:

1) It’s easy to get the calculations wrong if you do it on your own so businesses will pay additional fees to have someone else do the paperwork and math.
2) For a small business that has had a massive reduction in force, paying for 65% of the premiums could be a net expense, until the government pays them back. For cash-strapped business, this could be another kiss of death.
3) This stimulus plan was supposed to help business, not add work and expense.

Perhaps I am being naive. Someone has to administer elements of the stimulus and perhaps we all have to share in the burden. And yes, the well run business like mine will probably easily absorb any additional administrative burdens, but then again, I’m also not dealing with layoffs.

What about the poor guy who has no job and notified only minutes before being laid off? What about his family’s health? What about his paper work and expenses with no job to pay for it?

I am tired of hearing the sob stories of businesses. The primary reason websites are not be over whelmed by sob stories of the unemployed is because they cannot afford the internet! Is there no compassion for the unemployed that they have to listen to the grippings of big or small business about the inconvience of doing paper work and/or waiting on a refund check from the government?

If your business fails, its because of your attitude! Give a hand and you will receive a hand!

Dear Anonymous –

Undoubtedly you are a successful business owner and have a great attitude toward your employees. Or you are probably one of the 25% in this country who believe your employer owes you something. Get a grip – cash flow is everything, without it any business is failed before it starts. Take a business class and grow up!

BTW I hope some time in my career you interview at one of my businesses. It will be apparent who you are.

I AM a small business owner and I don’t know how I’m going to afford this “Tax Credit” As of this week, I will have all but three people laid off. Yes, I feel sick about it, but if all 15 people laid off sign up for the COBRA discount, I will be out $2500 a month. There won’t be enough taxes to offset that credit, as you so clearly pointed out. For me, I am barely going to make it through the next 30-60 days until work picks up again. How am I going to afford an extra $5000?! That’s 12% of my operating expenses for the next two months. I don’t even make 12% in my line of business! This SUCKS! Plain and simple. I feel for the laid off workers, but that $5000 is the paycheck for at least 4 people. Would YOU want to be told that you couldn’t come back to work until the government reimbursed me my $5000?

I cannot frankly believe the whining and complaining about your administrative costs. Weren’t there more forms and files to file when you had a full staff? I don’t blame you for wanting to hold onto your business, that undoubtedly you worked so hard for. However; it sounds as if you are more concerned with saving your hide than anyone else’s. Try being unemployed, and receiving a big whopping $1900 a month, if you are lucky, and spending all $1800.00 of it on Cobra.

So, if business is down, do you mean to tell me that keeping people on and paying them wages/ and health insurance, didn’t trim your budget significantly. Like most companies who trim down their work force, they manage to eventually profit from less overhead, working their spared employees to death. Sorry, it doesn’t add up e.g.., you lay off five employees – you now pay five less salaries and five fewer health insurance policies. but you gain 35% of their health policies since government will reimburse you for. Sounds like you came out ahead. You are a business man/woman – you worked the margins, so you definitely have some padding.

The Government Cobra policy is a life line for the unemployed, about , 20% in CA, counting the underemployed and those not on the unempoyment payroll. With an unemployment check of $1900.00 – speaking for my family, and a Cobra family plan for $1810 – there is not much left over – zero safety net.

I am having trouble feeling sorry for you about your paperwork. And the delay? How about using your credit line? or did the banks raise it, or increase your interest rate, after we, the tax payers, bailed them out. Be careful where you shoot arrows.

Signed Anonymous

I am on long term disability started 11/22/09.Do I qualify for subsidy on my cobra insurance ,with this new health plan set up by president oboma?

I was informed months ago that my position will be cut for the next school year, and ever since, I have been working my tail off trying to find a job, but have had no luck. I don’t feel sorry for the employers that have the burden of extra paperwork, expenses, etc. of this plan. I would be delighted to be shuffling around papers if it meant I was employed next year. I am a dedicated employee who has made a strong commitment to helping students succeed and be prepared for the future. What I got in return was being laid off because I am not tenured. I am a realist – I know life isn’t fair, but on top of everything else, it will cost me everything to be insured. Again, I don’t feel sorry for the employers who will be dealing with a small percentage of this economic crisis, because it is the employees who are the real victims.

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