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COBRA Rate Setting & Wellness Incentives

 October 31 2019     Diane Cross

For employers with a wellness program that offers a premium discount as a reward, there is often confusion when it comes to COBRA rate setting. Specifically, how does such premium discount impact the COBRA rate? If you are confused already, you are not alone – we discuss the issue further below.

Background: COBRA Rate Setting
Before explaining further, understanding basics about COBRA rate setting is important. COBRA premiums are the “cost to the plan” for providing group health coverage and can be up to 102% of the applicable premium (2% accounts for administrative costs). In the case of a disability extension, the COBRA premium can be up to 150% of the applicable premium. For fully-insured plans, this is the cost paid to the insurer, both the employer and employee portion. For self-funded plans, the COBRA premium can be determined based on (1) a reasonable actuarial estimate method; or (2) a past-cost method. Regardless of how the premium is calculated or how the plan is funded, the COBRA premium is the cost to the plan for providing coverage.

Wellness Incentives & COBRA Rates
As an incentive for participation in a wellness program, employers may choose to offer discounted premiums for group health plan coverage. Employers who do such often ask if that impacts the COBRA premium for wellness participants. With the above in mind, it is important to remember that the COBRA premium is the cost to the plan and generally, participation in a wellness program does not change the cost to the plan. While wellness program incentives may allocate the cost differently between the employer and employee, it generally does not affect the total cost. And, if the cost to the plan is not affected, there is no impact to the COBRA premium. 

For example, Employer provides a $100 monthly premium discount for employees who participate in its wellness program. In this instance, the employer portion of the cost to the plan increases while the employee portion decreases – but the total cost to the plan does not change.

Employers who sponsor wellness programs should understand that generally, an employer’s premium discount for employee participation in a wellness program does not affect the COBRA premium. For questions, please contact your HORAN representative.

Note this blog post pertains to wellness programs that are part of a group health plan and where the cost to the plan is not impacted. There may be different considerations for stand-alone wellness programs, or for wellness programs where the insurer discounts the premium the employer pays due to wellness participation.