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Chief Troublemaker Says 'Sheesh!': How the Stimulus Plan's Subsidized COBRA Coverage Means Additional Burden for Small Business

by Jill Foster on June 19, 2009

Founder/CEO and self-proclaimed Chief Troublemaker of Matrix Group International Joanna Pineda is a Women Grow Business enthusiast. She is known for her visionary big-picture thinking and drive for excellence. Combining her broad liberal arts background and passion for technology, she started Matrix Group in 1999, today a leading interactive agency. As a trusted advisor, Joanna inspires and motivates her clients and employees alike to simply, “be better” with her mantra being: Do or Do Not. There is no try!

I recently 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?

Cycle of a small busines refund
Under the law, 65% of COBRA premiums will be subsidized by the federal government, with the remaining 35% paid for by 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./Ms. 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.”

What do you think about the stimulus plan’s impact on small businesses?

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[Thanks Joanna Pineda for cross-posting from The Matrix Files]

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