Can new employer pay for Cobra so I can keep plan from old employer?
July 26, 2019 5:57 PM Subscribe
My share of health insurance at my new job is going to cost a lot. I am eligible to be on Cobra at my old job for 3 years. The cost of Cobra to stay on the old job’s insurance is the same as the employer’s share in the new job. Can I ask them to pay for me to Cobra instead of switching to their plan?
I was at a larger firm, with health insurance I liked. I left last month and now will start a new job in a few weeks. The new offer lists equivalent insurance options for which which my share will cost me a lot as it’s a smaller firm.
The share that the new firm pays is equal to what Cobra costs to be on my old firm’s plan. I’m thinking of asking the new firm to pay for Cobra by reimbursing me, that way I keep the coverage I am used to and don’t have to pay anything extra. The outlay to the new firm remains the same.
I’ve looked into how they can pay for Cobra, if they add it to wages it would be taxed, so working out a reimbursement would be best. Is this possible, what might be some reasons they can refuse to do it? How do I argue it? Both parties are excited, the offer is great in every other way.
I was at a larger firm, with health insurance I liked. I left last month and now will start a new job in a few weeks. The new offer lists equivalent insurance options for which which my share will cost me a lot as it’s a smaller firm.
The share that the new firm pays is equal to what Cobra costs to be on my old firm’s plan. I’m thinking of asking the new firm to pay for Cobra by reimbursing me, that way I keep the coverage I am used to and don’t have to pay anything extra. The outlay to the new firm remains the same.
I’ve looked into how they can pay for Cobra, if they add it to wages it would be taxed, so working out a reimbursement would be best. Is this possible, what might be some reasons they can refuse to do it? How do I argue it? Both parties are excited, the offer is great in every other way.
Best answer: Can they? Sure. Will they? Maybe but it sounds like a pain in the ass for them so it is actually more expensive because it is more work for them.
The rules for reimbursing employees for healthcare costs are vast, and very specific, and could come with penalties, figuring this out on their end would be a giant pain in the ass to do this in a compliant way. It would be much easier to just give you a raise or a bonus that covers the cost, that would be taxable income.
I can totally buy it on a short term basis like peanut talks about but as a benefits manager if a recruiter or hiring manager came to me and asked if we could do this I would say, "God no. Just pay them more if you want to but we aren't negotiating anything that formally says we are paying their coverage indefinitely."
Also you'd still be considered eligible for their plan. Unless they set up like a separate entity or employee type and changed all their plan documents to exclude that entity or employee type.
posted by magnetsphere at 6:16 PM on July 26, 2019 [1 favorite]
The rules for reimbursing employees for healthcare costs are vast, and very specific, and could come with penalties, figuring this out on their end would be a giant pain in the ass to do this in a compliant way. It would be much easier to just give you a raise or a bonus that covers the cost, that would be taxable income.
I can totally buy it on a short term basis like peanut talks about but as a benefits manager if a recruiter or hiring manager came to me and asked if we could do this I would say, "God no. Just pay them more if you want to but we aren't negotiating anything that formally says we are paying their coverage indefinitely."
Also you'd still be considered eligible for their plan. Unless they set up like a separate entity or employee type and changed all their plan documents to exclude that entity or employee type.
posted by magnetsphere at 6:16 PM on July 26, 2019 [1 favorite]
They can't just reimburse you - it will still be taxable. I suggest you ask them to add it to wages, and if you have the leverage you can ask them to "make you whole" i.e. pay a bit more to cover the taxes. You'll then have to decide how to handle things when you lose your COBRA eligibility- will they then lower your pay if you go onto their plan?
Basically- you dan ask, sure, but there are lots of tax disadvantages for you and your employer and the cost is likely not actually the same.
posted by cushie at 6:33 PM on July 26, 2019 [2 favorites]
Basically- you dan ask, sure, but there are lots of tax disadvantages for you and your employer and the cost is likely not actually the same.
posted by cushie at 6:33 PM on July 26, 2019 [2 favorites]
Best answer: If they offer you a health care stipend, or reimburse your health care, it's my understanding they'd have to offer that same incentive for other employees. Magnetsphere is right that it gets very complicated.
I think the easiest thing to negotiate here is an increase of your salary that would cover your Cobra, plus a percent to cover the taxes taken out since this will count as wages. If it really is the same amount exactly, they may not be willing to cover the extra %, in which case that's the amount you pay to be able to keep the insurance you like.
posted by fyrebelley at 6:34 PM on July 26, 2019 [1 favorite]
I think the easiest thing to negotiate here is an increase of your salary that would cover your Cobra, plus a percent to cover the taxes taken out since this will count as wages. If it really is the same amount exactly, they may not be willing to cover the extra %, in which case that's the amount you pay to be able to keep the insurance you like.
posted by fyrebelley at 6:34 PM on July 26, 2019 [1 favorite]
What comes to mind for me is that if your cobra insurance decides to deny you something you need, and if you're on cobra I don't see why they'd have incentive to cover anything tbh. I've had the experience of insurance denying for no reason a surgery my husband needed and my company hr went to bat with them for us, because that's who their customer is. (Because the company was self-insured like many big companies even the state insurance commission couldn't help). So there is something to be said for being under the protection of the only party the insurance company cares about other than their shareholders.
posted by bleep at 6:39 PM on July 26, 2019 [3 favorites]
posted by bleep at 6:39 PM on July 26, 2019 [3 favorites]
The IRS only lets employers give employees untaxed money for health insurance if they're on the company-sponsored health insurance*. Employees are only eligible to receive untaxed money for health insurance from employers if they're on the company-sponsored health insurance. So this situation does not qualify you or the company for untaxed contributions toward your COBRA coverage, and they will rightly decline to give give you an untaxed reimbursement for this reason.
It's super common, though, for employers in this situation to raise an employee's taxable wages, ideally by enough to cover the cost of COBRA and the additional tax burden. You could ask for this during salary negotiations. They may still decline out of affordability concerns, concerns about seeming to discriminate if they're doing this for you and not others, or just general discomfort with a loophole that might feel shady even though it's not really. But it's worth asking!
A few other things to keep in mind, though:
- If you change your mind after awhile and want to voluntarily cancel your COBRA, that does not count as a qualifying event that would allow you to enroll in your company's coverage. You'll need to either wait for your COBRA to officially expire, or your company's next annual open enrollment
- If the company is small enough, they may be concerned about health insurance participation requirements (carriers require X% of the company to enroll to approve a company policy, and at very small companies, just one person waiving could reduce participation percentage drastically). While this doesn't matter right now, since the company already has their policy in place, it may be a concern at their annual renewal.
- Also, your COBRA will expire at some point, so you'll need to figure out what you want to do then
*Or if they have an HRA in place, which does not usually occur alongside company-sponsored health insurance
posted by rhiannonstone at 8:00 PM on July 26, 2019 [2 favorites]
It's super common, though, for employers in this situation to raise an employee's taxable wages, ideally by enough to cover the cost of COBRA and the additional tax burden. You could ask for this during salary negotiations. They may still decline out of affordability concerns, concerns about seeming to discriminate if they're doing this for you and not others, or just general discomfort with a loophole that might feel shady even though it's not really. But it's worth asking!
A few other things to keep in mind, though:
- If you change your mind after awhile and want to voluntarily cancel your COBRA, that does not count as a qualifying event that would allow you to enroll in your company's coverage. You'll need to either wait for your COBRA to officially expire, or your company's next annual open enrollment
- If the company is small enough, they may be concerned about health insurance participation requirements (carriers require X% of the company to enroll to approve a company policy, and at very small companies, just one person waiving could reduce participation percentage drastically). While this doesn't matter right now, since the company already has their policy in place, it may be a concern at their annual renewal.
- Also, your COBRA will expire at some point, so you'll need to figure out what you want to do then
*Or if they have an HRA in place, which does not usually occur alongside company-sponsored health insurance
posted by rhiannonstone at 8:00 PM on July 26, 2019 [2 favorites]
What happens if your old firm changes their insurance over the next 3 years?
posted by childofTethys at 6:56 AM on July 27, 2019 [1 favorite]
posted by childofTethys at 6:56 AM on July 27, 2019 [1 favorite]
childofTethys has a great point, as well. As long as you remain on your old firm's coverage through COBRA, you'll go through their annual renewal process. This can be a pain, because many insurance administrators don't have a good process for including former employees on COBRA in the renewal, but also means that you're subject to any carrier or plan changes they make at renewal.
posted by rhiannonstone at 10:58 AM on July 27, 2019
posted by rhiannonstone at 10:58 AM on July 27, 2019
Response by poster: Thanks everyone! It seems a salary bump is the most viable option to for the new firm to help me out. My old firm is much larger, I’m joining a small company, like a start-up, so the difference in insurance will remain and any renegotiation of terms at the large firm will, in all likelihood, be better than what the small firm can do in the next year or two. That combined with open enrolment is choice enough for me.
After some calculations, I would save nearly 10k over 3 years if the new firm covered my Cobra payments at equal to what they would spend on me if I chose their option. Even if they bump my salary by the cost of the cobra plan and I’m taxed on it I save more than 5k over 3 years. I’m just trying not to loose that money as I have this cobra option.
posted by whatdoyouthink? at 9:24 PM on July 27, 2019
After some calculations, I would save nearly 10k over 3 years if the new firm covered my Cobra payments at equal to what they would spend on me if I chose their option. Even if they bump my salary by the cost of the cobra plan and I’m taxed on it I save more than 5k over 3 years. I’m just trying not to loose that money as I have this cobra option.
posted by whatdoyouthink? at 9:24 PM on July 27, 2019
18 Months. Termination of employment means you are eligible for COBRA for 18 months, not 3 years.
posted by magnetsphere at 6:56 AM on July 28, 2019
posted by magnetsphere at 6:56 AM on July 28, 2019
Best answer: 18 Months. Termination of employment means you are eligible for COBRA for 18 months, not 3 years.
If the old company had an insured plan (perhaps not likely, if it's a large group, but I've definitely seen it), state mini-COBRA might wrap around COBRA to provide for 36 months. For example, en employer with an insured plan in New York - even a large group that wouldn't have been subject to mini-COBRA before 2009 - has to offer 36 months of COBRA, even for termination of employment or reduction in hours qualifying events.
But if the difference between 18 and 36 months would change your decision, make sure you double check with the old plan.
posted by Pax at 5:30 PM on July 28, 2019
If the old company had an insured plan (perhaps not likely, if it's a large group, but I've definitely seen it), state mini-COBRA might wrap around COBRA to provide for 36 months. For example, en employer with an insured plan in New York - even a large group that wouldn't have been subject to mini-COBRA before 2009 - has to offer 36 months of COBRA, even for termination of employment or reduction in hours qualifying events.
But if the difference between 18 and 36 months would change your decision, make sure you double check with the old plan.
posted by Pax at 5:30 PM on July 28, 2019
Response by poster: 36 months. New York State Law - 36 months.
posted by whatdoyouthink? at 7:43 PM on July 28, 2019
posted by whatdoyouthink? at 7:43 PM on July 28, 2019
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posted by peanut_mcgillicuty at 5:59 PM on July 26, 2019