Is the COBRA Subsidy Going to Cripple the Small Businesses of America?

Individuals who lose their group health insurance coverage because of an involuntarily termination between September 1, 2008 and December 31, 2009 are eligible for a 65% federal subsidy on thier COBRA or state continuation coverage. The federal subsidy applies for nine months, in which time the terminated employee needs to find indiviudal health insurance coverage or a job that offers group benefits.

One exception of the federal subsidy is that individuals whose modified gross income is between $125,000 and $145,000 and couples' gross incomes between $250,000 and $290,000 will NOT receive any subsidy.

Employers with more than 20 employees are required to send a Group Continuation letter to their former employees to allow them to elect the coverage and receive the subsidy. The former employees have 60 days after receiving the letter to enroll.

Former employees who qualify for the subsidy will only be required to pay 35% of the group continuation coverage premium, while the remaining 65% will be paid by the former employer. The former employer will be reimbursed by the federal government through a reduction in their quarterly payroll taxes.

So what does this mean for the small group businesses and their former employees? The small group businesses are essentially fronting a load to the federal government to cover 65% of their former employees' health insurance coverage for 4 months at a time. With the raising cost of group health insurance premium, and more and more companies downing their group coverage, this is just one more expense that they are responsible for. For some companies, this additional overhead maybe the straw that brokes the camel's back. For the former employees, this subsidy is just a temportary solution to thier larger problem, not be able to get individual health insurance because of pre-existing conditions or the lack of jobs that offer group health insurance benefits.