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COBRA for small business employees in New York

Kim Morris | March 13, 2009

New York State Governor Patterson is pushing a proposal to expand the federal COBRA subsidy to laid-off employees of small businesses that are otherwise exempt from the federal program. While the move would clearly benefit some individuals, we do not think that passage is likely for several reasons:

1) The bill introduced in the NY state legislature intends to modify a federal program. The state cannot legally dictate how a federal program (in this case the employer's wage tax credit) will be administered by the U.S. Treasury. Unless the state uses its own funds or gets unlikely approval to use federal stimulus to pay for the program, it is unlikely to be funded. At this point there is no indication that federal lawmakers or Treasury officials are open to this idea.

2) Even if state funds were available, there is no obvious mechanism for distribution of funds to small businesses. Since state taxes are substantially less than federal wage taxes, the wage tax credit would not work. Any other system would create even more paperwork and would likely be viewed as a headache by small businesses.

3) Small businesses generally do not have the administrative capabilities to handle the requirements of COBRA. Even if the program were in place, the non-compliance would be tremendous. Previous Treasury Dept. surveys of small business 401(k) plans have found that almost half of these companies are not in compliance with current law. An even higher rate of non-compliance is reported from administrators of small business Health Savings Accounts. Given this history, there is certainly no reason to believe that compliance with a brand new COBRA requirement would be any more efficient.

4) COBRA law was specifically intended to exclude small businesses to prevent discouraging small firms from offering health plans. Employee health plans are voluntary and struggling small businesses need very little push to drop their health palns entirely.

5) Even if all of these obstacles were overcome, the number of people who would qualify AND have the cash available to pay for retroactive COBRA insurance would be minimal. Remember that small business employees have lower salaries, lower savings and generally lower financial resources than the employees of larger companies. The entire program proposed by Gov. Patterson would amount to much ado about nothing.

If the Governor really wants to make a difference, he could push NY Insurance Department to allow residents the same access to low cost COBRA alterntive insurance that are used a a stop-gap measure by laid-off employees in other states. New York currently prohibits the issuance of short term major medical insurance. Most laid-off workers in New York who pay for health insurance utilize a mini-med insurance with low that provides a lower level of benefits at a premium that is more affordable than COBRA and has lower out-of-pocket costs. The logic is that some coverage is better than none at all. Core Health Insurance, for example, offers New Yorkers under age 40 to enroll for coverage on a flexible month-to-month basis for $118 to $275 per month, depending on the level of coverage selected. This plan limits overall benefits to $1 million and places lower benefit limits on specific coverage like daily benefits for hospitalization and does not issue a Certificate of Creditable Coverage. But this insurance remains popular because there is no deductible or co-payment required - a feature that is especially important to those who have recently lost their primary source of income.

Tags : cobra, cobra subsidy

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