Q. We had to terminate an employee for failure to adequately perform his job responsibilities. Can we deny him the COBRA subsidy because the termination was not a layoff or a result of the economy?
A. The first things to consider: Is your company’s group health plan subject to COBRA or a similar state continuation requirement? Immediately prior to termination, was the employee covered under the group health plan?
A termination for failure to perform responsibilities will generally be considered involuntary. Unless the termination was for gross misconduct (which can negate an individual’s COBRA continuation rights), the employee will be eligible for the subsidy, which was created by the federal economic stimulus legislation enacted earlier this year.
The employee will need to elect subsidy treatment after determining that he meets the criteria to be an assistance eligible individual (AEI). An AEI cannot be eligible for other group health coverage (such as through a spouse) or Medicare, and must have a modified adjusted gross income under $125,000 for singles ($290,000 for married individuals). Individuals with modified adjusted gross income in excess of that amount will be subject to partial or full recapture of the subsidy amount.
You cannot deny subsidy treatment if your company does not think the former employee meets the income limitations. The former employee, however, can elect to permanently waive subsidy treatment.
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