Important Considerations for COBRA Subsidies
Although uncommon, there are occasions when Employers offer to pay for all or a portion of a former employee’s COBRA premium. At times, a severance agreement will include a clause which offers to withhold the premium from severance payments going forward for a period of time (not to exceed the 18 months imposed by COBRA). Often times, this offer is made in exchange for a release of Employer liability under the Age Discrimination in Employment Act (ADEA) or any future claims made against the Employer. Some Employers also offer this option as an incentive for early retirement.
Whatever the motivation to assist former employees with their COBRA premium payments, Employers should proceed with caution. An Employer’s risk could potentially increase when an Employer puts itself between the insurance company/stop-loss provider and the former employee particularly in a case where a premium is not paid on a timely basis. If severance packages do involve COBRA subsidies, our recommendation is to include specific language regarding how the payments and/or subsidies will be handled and a reminder of the COBRA election requirement.
It’s important to consider these instances when selecting an administrator. Does your administrator have the ability to remove the Employer from the business of collecting or paying COBRA premiums on behalf of the former employee? Does their system offer sophisticated subsidy capabilities enabling the Employer to subsidize on a benefit specific basis? The employer may choose to subsidize various coverages in varying amounts and durations. For example, an employer may choose to pay 100% of medical premiums for 12 months, $25 of the dental premiums for 18 months and not subsidize any premiums on vision coverage. The ability to accept payments from the COBRA participant (less any employer subsidy) on behalf of the employer can help avoid extra work and liability for the employer.
For more information contact myCobraPlan at (937) 865-6501.