Who is entitled to receive the COBRA 2% Surcharge?

[Guest MJM]

Can an insurance company issuing a certificate of coverage for a group health plan retain the 2% administrative surcharge which a plan sponsor or plan administrative is authorized to charge under COBRA? I would like to know who is entitled to the 2% surcharge authorized by COBRA. Also, I have heard that insurance companies have been adding an additional 2% surcharge (in addition to the authorized 2% surcharge) for adverse selection. Can anybody confirm this practice?

[KIP KRAUS]

MJM:

I haven't seen anything in the regs that say who is entitled to the 2%. As far as I know, the regs simply say that the health plans can charge the additional 2%. However, I do know that some insurers will keep the 2% for their fee for billing COBRA participants. On the other hand, if the employer is having COBRA participants pay them directly, then the employer is keeping the 2%, because COBRA participants simply stay on the group billing at the group rate. Some plans separate the COBRA participants from their normal group billing, but they are still billed by the insurer for the group rate.

I have never heard of an insurer adding an additional 2% on top of the COBRA 2% for adverse selection. I would think this practice would be a violation of COBRA and state regulations. In fact, if the medical plan is fully experienced rated, whether self-insured or insured, it wouldn't make any difference to the insurer with regard to adverse experience because the plan absorbs the claims experience.

[Kirk Maldonado]

I think that the rumor that insurance companies charging an additional 2% is just another "urban myth."