How To Calculate COBRA Insurance Costs
The Consolidated Omnibus Budget Reconciliation Act (COBRA) allows workers and their families who lose their health benefits to continue group health benefits provided by their group health plan for a limited period under certain conditions such as:
- Voluntary or involuntary job loss
- Reduction in hours worked
- Transition between jobs
- Death in the family, divorce, and other life events
As employers, you are responsible for informing employees about their federally mandated right to continue their present health coverage. But how do you calculate how much they will have to pay?
Determine Eligibility for COBRA
Step 1: Determine which ex-employees are qualified for COBRA coverage. Terminations can be voluntary or involuntary; the only exception is a termination due to gross misconduct.
Step 2: Check to discover whether any present staff qualifies. Employees whose work hours have been reduced to the extent that they no longer qualify for health insurance may also be eligible for COBRA benefits.
Determine who is eligible for benefits and who is not. If employees satisfy the qualifications in Steps 1 and 2, their spouse and children may be eligible for COBRA coverage. Furthermore, dependents may qualify due to an employee's death, divorce, or legal separation, or when a covered employee becomes eligible for Medicare benefits.
Inform All Involved Parties
You must inform employees and the group health plan administrator about the employees' termination and how it affects their health coverage. Employees must be informed about their eligibility within 14 days of notifying the group plan administrator about the changes made.Because employees are required to pay the total amount of the health insurance, plus a 2% administrative charge, employees must be informed about their ability to opt-in for continued coverage under COBRA.
Calculate COBRA Premiums
Add a 2% administrative charge to the current premium rate to calculate the former employee's premium. COBRA recipients must pay the entire health insurance premium plus a 2% administrative charge. Employers are no longer responsible for their portion of the premiums. This also applies to those paying family rates and those who are paying for their spouses and children. Premiums are set for a 12-month period.
The group plan can set its own payment schedule, however, employees with coverage may request to pay monthly.
Keep Track of Due Dates
Premiums are due within 45 days of the employee opting for COBRA coverage. The minimum grace period for premium payments is 30 days, depending on the group plan.
Employees who do not sign up for benefits within 60 days are no longer eligible for COBRA coverage.
For more info on handling COBRA administration, go to The COBRA Training & Certification Program
HR Certificates Online
Many employers do not comply with COBRA and do not inform their employees of their right to continue their health insurance coverage. Violations can cost the company up to $110 per day. If you're an HR professional and want to become familiar with the ins and out of COBRA, take our COBRA Training & Certification Program today!
Learn more about how to grow your career as an HR professional; check out our HR certification programs today!
