PEO's calculation of Cobra rates

[TxMike]

Hello - thank you in advance for trying to answer this question:

I was co-employed by a PEO and know the combined employer/employee rates for Medical coverage because I have the contract between my former employer and the PEO.  Therefore, when I received the Cobra notice, I was surprised that the Medical rate wasn't just 102% of the total cost of the medical plan (employer + employee).  

Is there something that I am missing that would allow the PEO to charge more than 102%?  

Thanks again.

[leevena]

23 minutes ago, TxMike said:

Hello - thank you in advance for trying to answer this question:

I was co-employed by a PEO and know the combined employer/employee rates for Medical coverage because I have the contract between my former employer and the PEO.  Therefore, when I received the Cobra notice, I was surprised that the Medical rate wasn't just 102% of the total cost of the medical plan (employer + employee).  

Is there something that I am missing that would allow the PEO to charge more than 102%?  

Thanks again.

Without additional information it is difficult to determine, but 2 possibilities are; the cobra rates for disabled can be 150% and the medical plan can be self funded.

[TxMike]

1 hour ago, leevena said:

Without additional information it is difficult to determine, but 2 possibilities are; the cobra rates for disabled can be 150% and the medical plan can be self funded.

It's a fairly large PEO, so the medical plan could be self funded.  I don't know for sure if it's self funded.  I'm not disabled.  If it's self funded, is there a formula to calculate the legal amount they can charge for Cobra?

[leevena]

Self funded plans have 2 methods of calculating cobra; actuarial basis and past cost basis.  Over the years I have heard/read of some PEO’s, and others, calculating much higher cobra rates either mistakingly or by accident.  Keep in mind, I am not saying this is what is occurring.

Are you confident that the numbers you have are correct?  Especially if this is a self-funded plan which could have their costs broken out.  Other than these options, I am out of ideas.

[TxMike]

11 hours ago, leevena said:

Self funded plans have 2 methods of calculating cobra; actuarial basis and past cost basis.  Over the years I have heard/read of some PEO’s, and others, calculating much higher cobra rates either mistakingly or by accident.  Keep in mind, I am not saying this is what is occurring.

Are you confident that the numbers you have are correct?  Especially if this is a self-funded plan which could have their costs broken out.  Other than these options, I am out of ideas.

I am 100% confident in the costs that my former company paid for the medical plan to the PEO. I saw the contract and have the rate sheets for my specific plan that shows the total rate paid by the company to the PEO. The PEO said that they can not make money on selling health insurance (they are not licensed to sell health insurance), so they "passed" the cost onto the client as an actual cost. The PEOs contract breaks out the cost for each item (i.e. Salary, medical benefits, taxes, etc.) with each payroll run.  

What I am trying to figure out is if the PEO is charging an incorrect rate on accident or if there is a legitimate way they could be charging a higher rate if the plan is self funded.  The cobra rate is about 20% higher than what my former company paid for the plan.  So, it's a material difference.  

Thanks again for your thoughts.

 

 

 

[leevena]

Since the numbers you have from the employer are correct then I am at a loss.  Could be a mistake.  If I were you I would ask the question to both the PEO and employer.  Do it in writing/email to have a trail.

Something came to my mind, and it’s a stretch, but you mentioned the cobra costs are about 20% higher.  20% is a common stop-loss level.  Is it possible you are looking at costs at an expected level and not adding in the agg?

[TxMike]

10 hours ago, leevena said:

Something came to my mind, and it’s a stretch, but you mentioned the cobra costs are about 20% higher.  20% is a common stop-loss level.  Is it possible you are looking at costs at an expected level and not adding in the agg?

You're speaking over my head here.  All I know is the costs that the employer/client pays the PEO.  The cobra rates are about 20% higher (where I can only understand 2 of the 20% increase).  The medical rates are good for 1 year.  

[leevena]

A fully insured plan is given a fixed rate, let’s use single only, and let’s use $800.  A self-Funded plan is provided with costs that are broken out, by way of example; $200 administration, $500 expected claims and a maximum claim cost of $600 (500x120%=600).  I have seen employers using Single at $700 (expected) and others at $800 (maximum).

[sharonfoster]

IMHO, you are wise to question the rates you were given with your election notice. I have worked with employee benefits for decades, with special emphasis on 'compliance', and could count on one hand the number of self-insured group health plans that calculate COBRA rates properly. I am not saying that vast numbers of plan sponsors are cheating as most rely on advice from their broker or consultant. The lack of knowledge on the part of the employees whose position includes setting these rates for clients is alarming. It is not uncommon for self-insured COBRA rates using expenses that should not be included and using the plan's maximum claim exposure to set the rates. 

I am also suspicious when a concern involves a PEO. While there are many fine PEOs, the track record of several PEOs, both large and small is a concern. Comparing the cost of very similar coverage on your insurance Marketplace can help you get a rough idea of what the plan should cost. An individual policy that is very similar to your current coverage should cost more through the Marketplace. The older you are the greater the difference will be, with the cost of COBRA being less.

I have attached the section of the Internal Revenue Code that addresses how COBRA premiums are set (it is several pages, but it is bookmarked and highlighted). I recommend pushing back on the PEO. If this is a private employer (not public sector e.g., city, school district, etc.) you can also call the Department of Labor. Your state insurance department may be able to help if your employer is in the public sector. Good luck.

IRC_4980B_Failure_to_satisfy_cont_coverage_require_of_group_health_plans.pdf