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The COBRA statute makes clear that COBRA premiums for self-funded plans shall be determined on an actuarial basis which takes into account factors to be prescribed in regulations. Such regulations 7 are, to date, not issued. While many non-actuaries calculate such premiums as they see fit, many others have been computed by a qualified actuary. The reasons for having a qualified actuary compute such are these: (a) increased protection for the plan sponsor; (b) such calculations are often very complex; (c) ancillary results (reserves, funding levels, benefit content analysis, etc.). See the Actuarially-Determined COBRA Premiums sub-site for a more detailed analyses of such computations.

The determination of COBRA premiums is often a complicated calculation. These items are challenging:

  1. Claims experience and stop-loss are composite, but the plan has a high-middle-low benefit structure. Benefit content analysis is needed. The difficulty of ending up with the low benefit plan costing more than the high benefit plan must be avoided.
  2. All data is provided two-tier, but the client wants COBRA premiums to be four-tier.
  3. Need to separate non-core from core benefits. Sometimes this is not easily done.
  4. Client wishes variations in COBRA premiums by geographic area or by age, both of which are easy extensions of the actuarial service.
  5. Client wishes variations in COBRA premiums for reasons beyond COBRA such as: (a) preparing 1099’s to the highly compensated where benefits are discriminatory; or (b) a basis for determining participant contributions; (c) for funding purposes; or (d) for intercorporate  expense transfers.
  6. Stop-loss is specific-only and experience data is limited or unavailable.
  7. Plan is a new plan with no prior claims experience.
  8. Managed care arrangements. What are out-of-network COBRA premiums?
  9. Unique computing challenges include the extra costs to be fairly added to COBRA premiums for: (a) lasered participants; (b) aggregating specific; (c) seasonal variations in claims; and (d) employer’s internal costs.

The practice of some practitioners to set COBRA at fixed cost; plus the aggregate funding factor is, at best, risky and at worst illegal. In one instance where COBRA premiums were challenged in a lawsuit (sticky employment termination dispute), the presence of an actuarial signature and the COBRA premiums below maximum proved to be critically favorable to the employer.

Do you have a self-funded plan in need of
actuarial support services?