COBRA Premiums

Frenchie

If we pay a new associate's COBRA premiums until they are eligible to join our health plan, is that taxable income to the associate? If yes, does it make any difference if it is paid to the associate or directly to the insurance provider?

Scott Ruth

It is my understanding that if you pay COBRA premiums it is taxable income to
the employee. It does not make any difference whether you pay it to the
employee or the insurer. Some companies "gross up" the COBRA payments to
compensate for these taxes.

Generally, I recommend that you not pay the premiums to the insurer for the
employee, or condition the payments on their use for the payment of premiums.
There is precedent which would call this payment of premiums establishment of
group health plan. Such a plan would carry all the COBRA and HIPAA notice
requirements of any group health plan. Just pay the person a sum of money, tax
them and let them be responsible for making the actual COBRA payments.

Scott Ruth
Miller & Martin LLP