A doctor employee will no longer be eligible for health insurance from a physician group due to a reduction in hours after partial retirement. The employer wants to pay a portion of the COBRA premium as if the employee were eligible for the group plan. The employee’s compensation will be such that he will still be considered a highly compensated employee. A few questions arise out of this situation.
Q1. If the employer pays the entire premium to the insurance company directly, will the premium be taxable income to the COBRA participant?
A1. No, if the employer pays the COBRA premium to the insurance company it is not taxable income.
Q2. Can the employee portion of the COBRA premium be paid on a pre-tax basis via the section 125 plan if is paid to the employer?
A2. Yes, if the doctor is still an employee and the terms of the cafeteria plan permit it.
Q3. Should the portion of the premium paid by the employee to the employer be paid with after-tax dollars?
A3. Not necessary, if the cafeteria plan permits part-time employees to pay COBRA premiums.
Q4. Would all future employees who would lose benefits due to a reduction in hours and elect COBRA have to be treated in the same manner?
A4. No. The employer has flexibility in deciding how to compensate and treat different employees.
Q5. Would the COBRA premium paid directly by the employer to the insurance company be tax deductible for the employer?
A5. Yes, the COBRA premium is tax deductible to the employer.