COBRA premiums

[Belgarath]

Say an employee is terminating shortly, but will receive a last paycheck - possibly including severance pay. Can the employee elect to "prepay" the next 6 months of COBRA premiums out of the last paycheck? 

[QDROphile]

Please clarify.

Are you asking if the taxable pay for some or all of the COBRA premium can be reduced and applied to the COBRA coverage?  That would be a question for the employer's section 125 plan and negative if the employer does not have a section 125 plan or the plan does not expressly permit it.

If you are asking if funds from the last paycheck can be used to prepay the COBRA premiums, the answer is (1) money is fungible, (2) it depends on the health plan administrator's policy about timing of payment of COBRA premiums, and (3) it depends on the payroll administrator's  policies about cutting multiple checks.  I illustrate my interpretation of this question by envisioning two final paychecks (net of applicable withholding):  one in the amount of the premium and the other for the balance of the pay.  The check in the amount of premium would be endorsed and delivered to the health plan.  Or just cash the check and write a new one to the health plan, depending on (2).

Your focus on the paycheck implies a question about something other than funds movement, as addressed in the first paragraph.

[Belgarath]

"Are you asking if the taxable pay for some or all of the COBRA premium can be reduced and applied to the COBRA coverage?  That would be a question for the employer's section 125 plan and negative if the employer does not have a section 125 plan or the plan does not expressly permit it."

Yes, the above. Thanks for the response.

[Belgarath]

I got a copy of the plan document, and the document does permit it. Thanks again, I'm all set now.

[ERISAAPPLE]

Yes.  The insurance company will always be glad to take the premiums from an eligible individual.  If the plan is self-insured, at a minimum this can be a matter of internal accounting.

As for discrimination issues, I assume the employee will be taxed on the severance and can do whatever he or she wants with the money.

As for taxation, a cafeteria plan is allowed to cover former employees who receive taxable compensation from the plan sponsor (provided the plan is not primarily for former employees).  Based on that I'm pretty sure you can pay for post-employment health coverage with pre-tax premiums paid during employment.  I have honestly never looked at that issue, but it seems to me if the participant can pay it after employment then payment during employment should be allowed. 

As a final matter, as QDROphile mentioned, check the plan document.