For those who do not share the joy of running a company, COBRA stands for Consolidated Omnibus Budget Reconciliation Act (Passed in 1985) and it “gives workers and their families who lose their health benefits the right to choose to continue group health benefits provided by their group health plan for limited periods of time under certain circumstances such as voluntary or involuntary job loss, reduction in the hours worked, transition between jobs, death, divorce, and other life events. Qualified individuals may be required to pay the entire premium for coverage up to 102 percent of the cost to the plan.” (US Dept of Labor Website.)

Here is an example of how it USED to work:

An employee has family coverage which costs a total of $800 a month. He pays 50%- $400 a month or $100 a week. The company pays the other $400. This varies among companies. Many just pay the single portion of the coverage and the family portion is born totally by the employee. In such a scenario the employee pays more than 50%.

The employee leaves, is fired, laid off or whatever. He has the opportunity to carry his company health insurance with no pre-existing conditions at the group rate plus no more than 2% (for administrative costs). If he elects to continue the coverage of his health insurance he pays us a check for the full $800 per month.

In reality few take the coverage because of the cost. Those who do elect to carry the coverage probably have a medical issue that is likely to need it so it adversely affects the company’s risk profile. But the process is simple: you want the coverage; you pay the cost. You get the benefit of a group rate and no pre-existing conditions but you bear the full cost.

Now this is how it now happens under the new administration:

You are separated from the company as before, but instead of paying 102% you pay only 35%. First, note that before you were only paying 50% so you actually get a 30% DISCOUNT on your end of the health insurance by getting fired or laid off. We may call that a bit of a perverse incentive.

Who pays the other 65%? Your employer pays the 65% INITIALLY, but then must apply for a credit against the social security deductions for the amount. So Social Security funds are ultimately being tapped.

But for me to know to pay the 65% I must know that the ex employee has paid the 35%. Otherwise I will be applying to the IRS for a tax credit for health insurance that was never bought. The IRS may not approve of such activity.

So the insurance company must advise me that the employee has elected to carry the COBRA coverage in order for me to pay the other 65%. But this is a possible violation of HIPPA. The Health Insurance Portability and Accountability Act (HIPAA) was enacted by the U.S. Congress in 1996. The Administration Simplification provisions also address the security and privacy of health data.

According to HIPPA, the Insurance company may be prohibited from advising us that he has coverage, but I am sure this detail will be worked out, eventually.

They have even discussed (get ready for this) getting the State Unemployment administrator to withhold the 35% from the ex employee’s unemployment check. But the state office has no staff or ability to carry out this formidable administrative task.

This plan is an administrative nightmare for the employers who are still in business but there is an even greater problem with the businesses that are shutting down. If a plant has closed (as many have and are about to) there are no social security deductions to get reimbursed from to pay for the remaining 65% of the health insurance premiums.

This is typical of government bureaucrats with no real world experience, and you can bet that no news show will enlighten the voters to the real costs of this very tiny portion of our new regulatory nightmare.

This is the current law. How many other prohibitive administrative costs are buried in the budget that nobody read?

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