COBRA: The 2% Administrative Fee
What premium do I charge the COBRA Continuant?
Normally, when we're talking money, we don't mind long, drawn out answers. But when it comes to COBRA's applicable premium and the allowable administrative fee, there's not a whole lot to say. The rule is quite simple, really.
Plans are permitted to charge COBRA continuants the applicable premium, plus a 2% administrative fee. The applicable premium is the cost to the plan for the coverage. The easiest way to determine this is to look at your billing statement or rate sheet from your insurance carrier. If employee-only coverage is $100/month, you're permitted to charge $100 + 2% for a total premium of--any guesses?--$102/month.
Occasionally, a slightly more complicated issue will arise. For example, what rate would you charge the qualified beneficiaries if coverage was elected only for spouse and dependent child?
To be on the safe side, check with the carrier on that one, however it is likely the applicable premium would be "employee + spouse". The same would hold true if only two children (dependents) elected.
The premium is whatever would be charged if we were dealing with an active employee and any combination of spouse and dependents. Of course, there are situations that could only exist under COBRA. For example, most plans would not allow spouse-only coverage. Under COBRA, each individual has an independent right to elect, so this would not be unusual at all. If only the spouse elects, the plan would charge employee-only coverage.
See below for the actual text from the 1999 Final COBRA regulations that established the definition of "applicable premium."
Q–1: Can a group health plan require
payment for COBRA continuation
coverage?
A–1: (a) Yes. For any period of COBRA continuation coverage, a group health plan can require the payment of an amount that does not exceed 102 percent of the applicable premium for that period. (See paragraph (b) of this Q&A–1 for a rule permitting a plan to require payment of an increased amount due to the disability extension.) The applicable premium is defined in section 4980B(f)(4). A group health plan can terminate a qualified beneficiary’s COBRA continuation coverage as of the first day of any period for which timely payment is not made to the plan with respect to that qualified beneficiary (see
Q&A–1 of § 54.4980B–7).
For the meaning of timely payment, see Q&A– 5 of this section. (b) A group health plan is permitted to require the payment of an amount that does not exceed 150 percent of the applicable premium for any period of
COBRA continuation coverage covering a disabled qualified beneficiary (for example, whether single or family coverage) if the coverage would not be required to be made available in the absence of a disability extension. (See Q&A–5 of § 4.4980B–7 for rules to determine whether a qualified beneficiary is entitled to a disability extension.) A plan is not permitted to require the payment of an amount that exceeds 102 percent of the applicable premium for any period of COBRA
continuation coverage to which a qualified beneficiary is entitled without regard to the disability extension.
Thus, if a qualified beneficiary entitled to a disability extension experiences a second qualifying event within the original 18-month maximum coverage period, then the plan is not permitted to require the payment of an amount that exceeds 102 percent of the applicable premium for any period of COBRA continuation coverage.
By contrast, if a qualified beneficiary entitled to a disability extension experiences a second qualifying event after the end of the original 18-month maximum coverage period, then the plan may require the payment of an amount that is up to 150 percent of the applicable premium for the remainder of the period of COBRA continuation coverage (that is, from the beginning of the 19th month through the end of the 36th month) as long as the disabled qualified beneficiary is included in that coverage.