Stimulus Bill's COBRA Credits Should Be Popular With Employers: Benefits Specialist

What You Need to Know

Workers normally pay 102% of the full price of benefits to continue the benefits under COBRA.
Using the proposed COBRA subsidy tax credit would be free for the employer.
William Sweetnam said he sees no reason why an eligible employer would avoid using the benefits.

Employers could choose whether or not to use the COBRA benefits subsidy tax credits in the new federal stimulus package, but they probably would use them.

William Sweetnam Jr., legislative and technical director at the Employers Council on Flexible Compensation, gave that assessment in written comments on the Senate amendment to H.R. 1319, the American Rescue Plan Act of 2021.

Members of the Senate approved the stimulus package Saturday by a 50-49 vote. House leaders have put the package on the list of measures that could come up on the House floor this week.

President Joe Biden has said he intends to sign the measure as soon as Congress sends it to him.

COBRA Benefits in H.R. 1319

The best-known provisions would extend worker access to supplemental unemployment insurance benefits and provide for the federal government to send many Americans $1,400 stimulus payments.

Another provision, in Title IX, Subtitle F, would provide a tax credit that employers could use to help displaced workers keep their employer-sponsored coverage in place, using the federal COBRA benefits coverage continuation rules, from the start of the month after the provision becomes law through Sept. 30.

Normally, employers and insurers can ask workers to pay up to 102% of the full premiums to keep the coverage in place.

Employers often pay 60% or more of the premiums when they offer group health benefits. For displaced workers, the loss of the employer contribution often makes the out-of-pocket cost of continuing benefits look too expensive.

The H.R. 1319 COBRA provision would let workers use COBRA continuation benefits without paying any of the premiums for the coverage.

Sweetnam’s Reaction

Sweetnam said that he sees no reason why an employer would choose to opt out of using the proposed COBRA tax credit subsidy.

“An employer can always elect not to use a credit, but it doesn’t seem economically sensible for the employer not to use the credit,” Sweetnam said.

The bill appears to require an employer that uses the subsidy to make COBRA continuation benefits available without requiring displaced workers to pay a share of the premiums, Sweetnam said.

“The bill says that, for eligible individuals, the COBRA premium is treated as being paid in full,” he said.

In theory, one possible obstacle to widespread adoption of the COBRA subsidy would be administrative issues. But Sweetnam’s group worked with members of Congress to make the provision as easy for employers and plan administrators to use as possible, he said.

Implications

For financial professionals, one implication is that clients who lose their jobs might not have to worry about paying their health coverage premiums for a few months.

Another implication is that companies selling inexpensive COBRA alternatives, such as short-term health insurance, might face tougher competition from COBRA while the extra COBRA subsidy is still in place.