Determining the applicable premium for COBRA

[Guest AHayhow]

I am seeing some insurance companies offering groups a step rate increase based on previous claims experience. For instance, if a fully insured plan for Company A is given a 19% increase, the carrier is offering to only increase 8% the first 6 months of the plan year (the plan year is also the COBRA determination period), they will review claims after the first 6 months and at that time determine how much (if any) of the remaining 19% to pass on (could be an additional 11%). My research has confirmed that the COBRA rates can only be increased to QBs one time during 12 month determination period so we advised client of that (we administer their COBRA). Insurance carrier came back and offered to send client 12 month Final Underwriting Approval Form that shows the 19% increase as the amount the client is charging employees off of and to be used to calculate the COBRA rates.

If the carrier is only requiring the client to pay the rates with the 8% increase for the first 6 months, can the COBRA rates be determined based on the 19% rate increase per the Underwriting Form?

[Guest Sieve]

As to your specific question, the regs. point to IRC Section 4980B(f)(4) for the definition of "applicable premium" (Treas. Reg. Section 1.4980B-8, Q&A-1(a)), which is "the cost to the plan for such period of the coverage of similarly situated beneficieies with respect to whom a qualifying event has not occurred" (IRC Section 4980B(f)(4)(A)), and that determination "shall be made for a period of 12 months and shall be made before the beginning of the period" (IRC Section 4980B(f)(4)(D)).

So, it would seem that COBRA applicable premium would be based on the premium at the start of the premium year, and could not later be changed except for one of the events in the regs (Treas. Reg. Section 4980B-8, Q&A-2(b))--& a mid-year increase in premium is not a reason to change the COBRA applicable premium.

So, if the employer is paying an 8% increase as of the start of the period for active employees covered under the health plan, then it appears that that's the premium (X 102%) for COBRA qualifying beneficiaries during that entire period (even if the premium for active employees increases further during the peeriod)--unless there's something out there I've missed.