Executive Compensation

Just to clarify a point from my Sunday blog — and to be sure that employers don't fall into a trap created by the new law — it is important to realize that the government subsidizes 65 percent of the actual amount of COBRA premium that the employer requests from an involuntarily terminated participant.

For example: Assume the monthly COBRA cost is $200.00, and the employer tells the participant that he or she "must pay the full cost for COBRA." In fact, with the subsidy, the participant would pay only $70.00 and the employer would pay $130.00. The employer then would be reimbursed for the entire $130.00 through the payroll tax system. However, if the employer has a plan or agreement with a participant, which specifies that the cost to the participant is only $70.00, then, with the subsidy the participant would pay 35 percent of the $70.00 amount the employer required ($24.50). The employer still would have to pay the remaining $130.00, but the employer would be reimbursed for only 65 percent of the $70.00 it pays each month ($45.50). This minor technical blunder would cost the employer $84.50 per covered participant per month.

 An employer that currently is charging COBRA participants less than the full COBRA cost (102 percent of the actual cost of group health plan coverage), may be able to modify that practice and save some money. Making this modification would be more different in situations where the employer has agreed to pay a certain amount or percent under a severance plan or agreement.