COBRA – or the Consolidated Omnibus Budget Reconciliation Act – is a federal law that allows recently terminated employees to continue subscribing to their former employers’ health insurance plans. COBRA requires companies with 20 or more employees to offer former employees to remain subscribed to company health insurance programs for 18 months.
Lipp Law Severance Negotiation Point:
COBRA payments include an employer and an employee contribution. Employers might contribute to paying insurance premiums as part of a negotiated severance package, but most of the time, former employees pay their portion which typically includes a 2% administrative charge.
The latest federal stimulus package will temporarily eradicate COBRA’s costs given the severity of the COVID-19 Pandemic and its impact on workers nationwide. From April 1 through September 30, the federal government will subsidize all COBRA-related fees, allowing eligible employees to remain subscribed to their employer-based health insurance plans. Employers should notify their former workers about their eligibility for COBRA. Individuals interested in remaining subscribed under COBRA would then notify their former employers who would ultimately keep them enrolled in their insurance plans. Because of this provision – outlined in the $1.9T stimulus package – more employees than usual will choose COBRA, which could increase companies’ health insurance costs. However, employers will be fully reimbursed by the federal government for this six-month period.
As outlined in the American Rescue Plan Act (ARPA), coverage costs will be funded by payroll tax credits. After September, employees can choose to remain on COBRA, but the government will no longer subsidize their premiums.
Although the federal stimulus package is expensive, this provision will benefit employers and employees alike. Employers’ costs are subsidized by the government, and former employees will remain subscribed to their insurance plans.
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