HRAs and COBRA

Employers with HRAs must offer terminated employees COBRA.

A Health Reimbursement Arrangement (HRA) is a self-insured medical plan that becomes an integrated component of the employer’s group medical insurance. Federal law requires that terminating employees be give the right to extend coverage for a period of time. Determining the COBRA premium for the group health plan’s part of the plan is easy. It is the billed amount from your group medical carrier. Calculating the additional premium to be charged for the HRA element is a little different.

Calculating The Additional COBRA Premium

An employer offering an HRA should add to the fully insured premium an extra amount for the HRA benefit. Taking total claims experience from the prior plan year as a percentage of the maximum liability of the group as a whole and dividing that number into a monthly amount calculates this extra amount.

For example: Assume the total an employer could pay out was $10,000 if all single and all family participants were to incur the maximum benefit offered. Further assume that the total claims paid out in the prior year were $2,000. The employer would then charge 20% of the maximum single or family benefit payable converted to a monthly amount.

In the absence of actual claims experience, the employer may charge a reasonable amount of what may be expected to pay out. What’s reasonable? 100% of the benefit is not reasonable. The following is a guideline to charging an additional amount as a COBRA premium.

The following is a guideline to charging an additional amount as a COBRA premium.
For “post-deductible” high deductible health plans: 30% of maximum per month
For health plans with medical & Rx copays: 30% of maximum per month
For health plans with Rx copays, no medical copays: 40% of maximum per month
For high deductible health plans w/o copays: 50% of maximum per month
For HRAs reimbursing all 213(d) expenses: 75% of maximum per month

Monthly Premium Amount To Notify For COBRA

Employers should take the fully insured insurance premium, add to that the monthly amount calculated for the HRA component, plus the HRA administration fee, and then multiply the total by 102% as permitted for administration.