Losing employer-sponsored health coverage can bring an unwelcome surprise: the cost of continuing that coverage through COBRA.
An employee who elects COBRA may remain enrolled in the same group health plan, but the way the premium is paid changes. The employer may no longer contribute toward the cost, leaving the former employee or other qualified beneficiary responsible for the entire premium.
Most people familiar with COBRA have heard of the 102% rule. Under certain circumstances, however, a plan may charge as much as 150% of its total coverage cost. Here is how both limits work and when the higher amount may apply.
How are COBRA premiums calculated?
A qualified beneficiary can generally be charged up to 102% of the applicable premium for COBRA continuation coverage.
That amount includes:
- The portion the employee previously paid
- The portion the employer previously contributed
- An administrative fee of up to 2%
This is why COBRA can cost considerably more than coverage did while the employee was actively working. The underlying cost of the plan may not have changed. The individual is now responsible for the share the employer previously paid, along with the permitted administrative fee.
The 102% figure is a maximum. Employers may charge less or continue subsidizing part of the premium, but federal COBRA does not generally require them to do so.
What does the 102% COBRA premium look like?
Consider an employer-sponsored health plan with a total monthly cost of $1,000. While actively employed, the employee pays $250 and the employer contributes the remaining $750.
If that employee elects COBRA, the plan may charge:
- $1,000 for the total cost of coverage
- $20 for the 2% administrative fee
- $1,020 as the maximum monthly COBRA premium
The difference between the employee’s previous $250 contribution and the new $1,020 premium can be substantial. Clear communication helps qualified beneficiaries understand that the increase reflects the employer contribution they previously received, along with the administrative fee.
When can a COBRA premium increase to 150%?
A plan may charge up to 150% of the applicable premium during an 11-month disability extension.
Termination of employment or a reduction in hours typically provides up to 18 months of federal COBRA coverage. When the disability-extension requirements are met, the maximum coverage period can increase to 29 months.
The higher premium does not apply throughout the initial 18 months. It may apply during the additional 11 months of coverage provided through the disability extension.
Using the previous example, a plan with a total monthly coverage cost of $1,000 could charge up to $1,500 per month during the extension period.
According to the Department of Labor, the plan may charge up to 150% while the disabled qualified beneficiary remains covered during the extension. If the disabled beneficiary does not remain covered, the plan generally cannot charge participating nondisabled family members more than 102%. U.S. Department of Labor
Who qualifies for the COBRA disability extension?
A qualified beneficiary must be determined disabled by the Social Security Administration. The determination must establish that the disability existed at some point during the first 60 days of COBRA continuation coverage and continued through the initial 18-month coverage period.
The plan must also be notified of the SSA determination according to its notice procedures. A plan may establish a deadline, but it must allow at least 60 days measured from the latest of:
- The date the SSA issues the disability determination
- The date of the qualifying event
- The date coverage is or would be lost because of the qualifying event
- The date the qualified beneficiary is informed of the notice requirement and procedures
Notice must also be provided before the initial 18-month COBRA coverage period ends. Because the exact procedures are established by the plan, qualified beneficiaries should review the summary plan description and provide notice as soon as possible.
Does the disability extension cover family members?
The disability extension can apply to every qualified beneficiary who elected COBRA because of the same qualifying event, including a covered spouse and dependent children. The family members do not each need to have a disability determination.
The disabled qualified beneficiary does not need to remain enrolled for other qualified beneficiaries to receive the extension. Their enrollment can, however, affect the maximum premium.
If the disabled beneficiary remains covered, the plan may charge qualified beneficiaries up to 150% during the additional 11 months. If the disabled beneficiary does not remain covered, the participating nondisabled qualified beneficiaries generally cannot be charged more than 102%.
A disability extension applies to an initial 18-month COBRA period. It does not add another 11 months when the original qualifying event already provides a maximum coverage period of 36 months.
When does the disability extension end?
The disability extension can provide up to 29 months of total COBRA coverage, although coverage may end earlier under certain circumstances.
For example, COBRA coverage may terminate early if required premiums are not paid on time or the employer stops maintaining any group health plan. The extension can also end after the Social Security Administration determines that the individual is no longer disabled.
Plans may require qualified beneficiaries to report a final determination that the individual is no longer disabled. The plan must allow at least 30 days after the SSA determination for this notice to be provided.
Why accurate COBRA premium administration matters
The difference between a 102% and 150% COBRA premium is significant. Applying the wrong amount can create confusion for participants and additional work for HR.
Employers and plan administrators need to track the applicable premium, qualifying event date, coverage period, disability determination, required notices, and payments. They must also account for changes to the plan’s cost or coverage options.
A COBRA administrator can manage these responsibilities while providing qualified beneficiaries with clear information about their coverage and payment obligations.
ebm provides full-service COBRA administration, including required notices, election processing, premium collection, reporting, and participant support. Our team helps employers manage continuation coverage while reducing the day-to-day administrative burden placed on HR.
