Hazel Becker writes at NuWire Investor that the economic stimulus legislation that became law on February 17 sets out to help people who are laid off by subsidizing their COBRA health insurance premiums for up to nine months. Although COBRA (the federal law that allows workers who have lost jobs to purchase insurance under their former employers’ plans) generally exempts companies with fewer than 20 employees, businesses with smaller workforces may be subject to state laws that require them to offer COBRA coverage. The stimulus provision is designed to help laid-off workers covered by either state or federal COBRA laws.
Under the stimulus law, employees who are “involuntarily terminated” from their jobs will only have to pay 35 percent of the premiums for COBRA insurance covering themselves and their dependents. The employer must pay the entire premium and then claim the subsidy as a credit against payroll taxes on Form 941. Employers are eligible for a cash refund from the federal government if their withholding tax payments to the IRS are not high enough to cover the remaining 65 percent of the premiums. Alternatively, they may opt to carry the left-over subsidy over to their next payroll tax period.
Workers who are/were laid off between September 1, 2008, and December 31, 2009, are eligible for the subsidy program, and those who declined COBRA coverage before the law took effect must be given another chance to sign up now that they know they would only need to pay 35 percent of the premium. The subsidy will help pay for up to nine months of medical insurance.
Although COBRA coverage is generally based on the insurance plan the individual had when employment ended, under the subsidy provision the employer may offer workers the option of choosing other coverage available to active employees as long as it does not have higher premiums than the coverage the individual had at the time of the COBRA-qualifying event.
