elaws - Health Benefits Advisor for Employers

Health Benefits Advisor for Employers

Does your group health plan charge qualified beneficiaries for COBRA coverage no more than 102 percent of the cost to the plan for similarly situated individuals covered under the plan who are not receiving COBRA coverage?

Who Pays for COBRA Coverage

Your group health plan can require qualified beneficiaries to pay for COBRA coverage, although plans can choose to provide this continuation coverage at reduced or no cost. The maximum amount charged to qualified beneficiaries cannot exceed 102 percent of the cost to the plan for similarly situated individuals covered under the plan who have not incurred a qualifying event. In calculating payments for COBRA coverage, your plan can include the costs paid by both the employee and the employer, plus an additional 2 percent for administrative costs. COBRA charges to qualified beneficiaries may be increased if the cost to the plan increases, but generally must be fixed in advance of each 12-month cycle.

For disabled qualified beneficiaries receiving the 11-month disability extension of COBRA coverage, payment for those additional months may be increased to 150 percent of the plan's total cost of coverage.

Timing of Payment

The plan must allow qualified beneficiaries to make payments on a monthly basis if they ask to do so, and may allow payments at other intervals (for example, weekly, quarterly, or semi-annually). Plans must provide at least 45 days after the election (that is the date the qualified beneficiary mails the election form if using first-class mail) for making an initial payment. If the first payment is not made in full before the end of the 45-day period, the plan can terminate the qualified beneficiary's COBRA rights. The plan should establish due dates for any payments for subsequent periods of coverage, but must provide a minimum 30-day grace period for each payment.

Plans are permitted to terminate COBRA coverage if full payment is not received before the end of a grace period. However, if the amount of a payment made to the plan is wrong, but is not significantly less than the amount due, the plan must either treat the amount submitted as full payment, or must notify the qualified beneficiary of the deficiency and grant a reasonable period (for this purpose, 30 days is considered reasonable) to pay the difference. The plan is not obligated to send monthly payment notices, but is required to provide a notice of early termination if COBRA coverage is terminated early due to failure to make a timely payment.

All of the necessary information about COBRA payments, when they are due, and the consequences of payment and nonpayment should be described in the COBRA election notice.