Can COBRA premiums increase?

[Guest ADM]

One of the Company's health plans has a plan year of 8/1 - 7/31. Premiums always go up on 8/1 - but the employer pays the premium for active employees. All the other health plans have plan years that coincide with the calendar year, so that open enrollment is always on 1/1. (It would be easier if all the plans had the same plan year - but that change is not likely to happen soon.) Can the Company increase the premiums for COBRA participants on 8/1 - so that it is still 102% of the premium. This would seem to fall within one of the three exceptions in the regulations for increasing the premium during the 12-month determination period. The increased rate would then be fixed from 8/1-7/31 for COBRA participants.

[Brigid Anderson]

Plans may charge up to 102% of the "applicable premium" for COBRA coverage. Code § 4980B(f)(2)©. The applicable premium is the cost to the plan of providing coverage and, for insured plans like yours, the cost to the plan is the premium charged by the insurance company to the employer (less any experience refunds or dividends). See, e.g., Draper v. Baker Hughes Inc., 892 F. Supp. 1287 (E.D. Cal. 1995). The applicable premium must be fixed for a 12-month "determination period." ERISA § 604(3); Treas. Reg. § 54.4980B-8, Q/A-2(a). Therefore, a mid-period increase in insurance rates will not permit a mid-period increase in the COBRA premium charged to QBs.

However, if you set the determination period for each of your plans to match the insurance company's contract period, you will be okay. The determination period does not have to match the plan year. It can be any period of 12 consecutive months so long as it is applied consistently from year to year.Treas. Reg. § 54.4980B-8, Q/A-2(a).

So the ultimate question is: How have you been doing it? Have you been following the contract year for COBRA determination period purposes? If not, it would appear to be necessary to change your determination period. Unfortunately, I don't know of any direct authority on how a plan properly changes its COBRA determination period. You should consult your attorney if this is your situation.

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[Guest on-cobra]

How much of an increase is too much? I've just made two months of cobra payments at a rate of $486/mo. I have now been told that due to a 73% rate increase from BC/BS of Michigan that the family cobra rates have been increased to $842/mo. That's a huge monthly increase and I know that I can get a better rate myself. The company has told me that they couldn't pass the increase off to their existing employees because they would go ballistic. However they are passing it off to their 70 cobra participants and hope that it will reduce the number of cobra participants. Is this covered by any regulation? 73%?

[Guest Benefits Maven]

On-Cobra:

As long the employer is not exceeding the 102% of the premium they are being charged, there are no other restrictions on how much they can charge you. And what they charge their active employees is in no way related to what they charge their COBRA participants. Sorry. I'd go out on my own for insurance if I were you.

[Guest Kathy Dupree]

I just received in my COBRA premium as a result of a mid-year increase from BCBS. The determination period began 1/1/02. Can the employer increase the premium effective 7/1/02 even though I am in the middle of a 12-month determination period?

[jsb]

Assuming a calendar year determination period, and a fiscal year (7/1/xx) plan year, can NEW COBRA participants be charged a higher premium (based on the new, higher plan year premium) than the existing COBRA participants?

e.g. dental plan premium is $100 for family, goes up to $130 on July 1, 2002. COBRA participant effective on 6/1/02 is charged $102. Will be changed to $132.60 effective 1/1/03. Can a new COBRA participant on say 8/1/02 be charged the $132.60 rate based on the $130 premium in effect on the date of loss of coverage?

Thanks.