calculating COBRA premiums

[jeanine]

When calculating the premium for the 12 month determination period, what does the self-funded client base its cost decision on? Can the plan base its calculations on speculation of future claims (such as knowing a very sick employee has just elected COBRA) or must the premium be based on the previous 12 month experience? I have a feeling that this is very wrong but I can't find the exact language to tell me so. Also, as far as being able to change the rate during the determination period, I see 3 express situations when this can be done. In other words, the Plan does not get a free pass every 12 months to raise rates. Is this correct?

[KIP KRAUS]

jeanine:

I base our self-insured medical and dental COBRA premiums on standard underwriting assumptions, which include the following:

1.Prior years paid claims

2.Adjustments for any change in participants

3. Adjustment for claims credibility

4. Adjustment for any shock claims

5. Claims fluctuation margin

6. Medical and dental inflation trend

7. Reserve adjustment

8. TPA fees

9. Stop loss premiums (medical only)

In addition, if you have made any major plan design changes, these need to be considered in projecting future claims.

If your plans have deductibles, you may also want to include an adjustment for deductible erosion.

Once you have determined the total projected cost for the next 12 months, you establish the premiums on the basis of the particpants and add your 2%.

[Guest jlcowden]

Kip nailed it the consideratuins are correct. For what it's worth:

Cobra rates can not be based on experience of Cobra participants

Some, I believe incorectly set Cobra rates at the aggregate rate maximum.

Jere

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jlcowden