PookieMD's Blog: Where Physicians Learn About the Business of Medicine

The implications of the stimulus package (The American Recovery and Reinvestment Tax Act of 2009) on small businesses, including medical practices, are greater than what meets the eye.  The package includes a provision that “involuntarily terminated employees” may be eligible for new COBRA benefits under the stimulus plan.  The plan provides a way for terminated employees to continue their previous health insurance at 35% of the COBRA rate, rather than 100% as it was before.  To put it simply, eligible terminated employees will pay 35% of the cost of continuing health care insurance, and the former employer will pay the other 65%.  The employer will then be reimbursed via a tax credit on payroll taxes and federal income taxes with held from employee’s compensation.

Whaaaat?  Basically, the former employer will pay for 65% of the terminated employee’s health insurance, and get the money back by not having to pay as much in payroll taxes.  Sounds great on the surface, but there are some pitfalls.  Chiefly, for small businesses of 2-5 employees, the payroll taxes may not be as big as the payment for the terminated employee’s COBRA insurance.  This would especially apply to low wage employees, whose pay roll taxes will be on the low side.(Picture a solo doc, and two MAs.  One medical assistant is laid off.  Is there enough in payroll taxes to cover the employer’s portion of COBRA?)

Additionally, employers that do NOT charge the full premium will not be eligible for the credit.  But wait, there’s more!  The former employee must pay their 35% before the employer can request reimbursement for the 65% they have paid.  Scarier still, employers may have to reimburse terminated employees if they have previously paid 100% of their COBRA premiums.  The law went in to effect March 1, 2009, but you have until April 15 to get all your ducks in a row.

You, my plucky practice owner, will need to figure out HOW your practice will do this. You must

• Find all involuntarily terminated employees, from on or after September 1, 2008, and make them aware that they may elect COBRA with the subsidy,
• Give these individuals 60 days to elect coverage, and supply them with the forms to do so,
• Create a procedure for refunding the subsidy,
• Figure out HOW you will pay for the employer’s portion of the subsidy.  (Show me the money!)

All this must be done by April15, 2009.

Now, I’m in favor of health care for all (duh), but driving small businesses out of business appears to be a bass-ackwards way to do it.  I’m especially against it when it effects solo docs and small primary care practices that are struggling to make ends meet.

Moral: be careful what benefits you offer, and be careful when you lay off an employee.  It may just drive you out of business.

For more info: read the excellent article “The Economic Stimulus Package and COBRA“.