When managing group health insurance plans, employers often face the challenge of aligning COBRA premiums with midyear increases in insurance premiums. However, the IRS COBRA regulations generally do not permit midyear increases in COBRA premiums. Here’s what you need to know:
Understanding COBRA Premiums
COBRA (Consolidated Omnibus Budget Reconciliation Act) allows qualified beneficiaries to continue their group health coverage after certain qualifying events, such as job loss. The premium for COBRA coverage is capped at 102% of the “applicable premium” for the coverage, which can increase to 150% during a disability extension.
Fixed Determination Period
The applicable premium must be computed and fixed before the start of a 12-month “determination period” and generally cannot be changed until the next determination period. This means that even if your insurer increases premiums midyear, you cannot pass this increase onto COBRA beneficiaries until the next determination period.
Exceptions to the Rule
There are three exceptions to this general rule:
- Disability Extension: If a qualified beneficiary’s maximum coverage period is extended due to disability, the premium can increase from 102% to 150%.
- Undercharging: If the plan is charging less than the maximum permissible amount (102%), it can increase the COBRA premium to that level.
- Coverage Changes: If a qualified beneficiary changes coverage from one benefit package or coverage unit to another, the premium can be adjusted to the new rate determined before the determination period began.
Strategic Planning for Employers
To avoid the complications of midyear premium increases, employers should:
- Align the insurer’s rate period with the plan’s 12-month COBRA determination period.
- Lock in the premium charged by the insurer for the entire determination period, at least for COBRA purposes.
By understanding and planning for these regulations, employers can better manage their COBRA premiums and ensure compliance with IRS rules.
Source: Thomson Reuters