When Congress approved the Obama administration's economic stimulus package in February, a little-known provision aimed at easing the pain of healthcare costs for laid-off workers triggered a financial hardship for business owners. This provision would extend COBRA health coverage for people who suffered an involuntary loss of employment between September 1, 2008 and December 31, 2009.
The provision also specifies that, instead of the 102% premium that individuals used to pay for COBRA coverage, individuals will now pay only 35% of the premium and the employer subsidizes the other 65%, which they then can claim as a credit against payroll taxes. The Department of Treasury is required to reimburse the employer if claims for subsidies exceed payroll tax obligation. The 2% in administrative costs are not covered.
The coverage subsidy means business owners can probably count on cash-flow problems. The business owner will need to have the cash to make the payment first, and then there is a lag time of a few months with payroll tax credits.
At a company with 20 people on COBRA at $1,000 per person, the employer would be laying out $650 each, which would be $13,000 per month. If that company is struggling, $13,000 a month could be significant.
This is certainly a change that is unfriendly to small business.
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