COBRA Rates

[Guest Ira Hayes]

Assuming a SINGLE (for ERISA purposes) group heath plan subject to COBRA provides identical benefits to all participants including active employees and retired employees not eligible for Medicare, is it permissible under IRC Section 4980B(f) and Revenue Ruling 96-8 to separate the two classes of participants for purposes of determining COBRA rates (hence arriving at COBRA rates for retired employees materially greater than non-retired employees on an actuarially certified basis)?

Please accompany any responses with citations.

Happy Holidays, Ira

[Guest taylorjeff]

Ira,

I've certainly seen group plans with the same benefits but different rates by class. Active employees - one set of rates, retirees under age 65 - another rate, retirees medicare eligible - another rate, retirees over age 65, but not medicare eligible - another rate. This was a large public entity plan. COBRA rates were based on the full active employee rate. I've never seen a COBRA rate for a retiree class. What would be the qualifying event?

According to 4980B(f)(2)©(i), the COBRA premium cannot be more than 102 percent of the cost of the plan for similarly situated beneficiaries, for whom a qualifying event has not occurred, for the period of continuation coverage.

If what you're really saying is the employer wants to charge employees who leave service due to retirement a greater COBRA cost than say another employee (probably younger) who leaves to go to another job, then I don't think you'll find any supporting citations.

If the employer is offering a retiree health plan in addition to COBRA, it's up to the employee to make a choice. Do they elect COBRA for 18 months, or go with a "retiree" plan for a longer period, but with possibly higher rates. Or, to add another twist, if they are a widow, or dependent of a retiree, in Illinois they can elect Spousal Continuation. The rate can then be loaded 20% (for administration) beginning with year 3.

Jeff

Assuming a SINGLE (for ERISA purposes) group heath plan subject to COBRA provides identical benefits to all participants including active employees and retired employees not eligible for Medicare, is it permissible under IRC Section 4980B(f) and Revenue Ruling 96-8 to separate the two classes of participants for purposes of determining COBRA rates (hence arriving at COBRA rates for retired employees materially greater than non-retired employees on an actuarially certified basis)?

Please accompany any responses with citations.

Happy Holidays, Ira