COBRA Q&A Series 3: Retroactive Premium Rate Changes

Posted on November 19, 2007. Filed under: COBRA & Health Insurance |

Today’s question for my COBRA Q&A Series involves “back billing” or making a retroactive change to a QB’s premium rates.  As always with this series, my goal with these posts is to create something of a “knowledge base” over time with these posts, but please always keep in mind when reading these that I am not an attorney, and I am not providing legal advice.  If you have a legal question concerning COBRA, HIPAA, USERRAFMLA, or any other ERISA matter, you should consult an attorney who specializes in these areas of law.  Finally, if you’d like a basic overview of COBRA with some links on where to find more official information, please see my earlier post here, and if you’d like to see other posts in this series visit the COBRA Q&A Series index page here.

Question

I think I remember an earlier conversation where you said that when you were running your COBRA TPA you always provided 30-day advance notice to COBRA QBs when their premiums were going to change, and that this is why you provide both an “effective date” and a “billing date” for new rate periods in COBRApoint.  Will you please explain this to me again?  I understand why back billing is questionable, but I have a few agents who disagree, and I’d like to understand this better.

Answer

This is a very real world question.  COBRA administrators across the country routinely complain that their employer clients are often extremely late in notifying their COBRA administrators of new plan rates for new plan years.  Since this question has two components — “what can COBRApoint accommodate” and “what would you do in this situation and why,” I’ll try to break my answer up into two parts (Ed Note — I decided not to include the COBRApoint specific part of this answer in this post, but if you’d like the full answer just send me an email.  Naturally COBRApoint can accommodate both proactive and retroactive rate changes even though we believe strongly in proactive changes ourselves).  I’ll tell you what we would do from our experience, but since this question gets into determination periods vs. plan years vs. policy years and other fun items, I’d recommend that you talk to counsel before determining your own firm policy.

What would we do when we were running our COBRA TPA in this scenario?

When we were running our COBRA TPA, we believed that the EBSA (within the DOL) advised us clearly that we needed to provide 30-day advance written notice to QBs of any changes to their premiums when these premiums resulted from a change in a plan’s rates (as opposed to a change because the QB asked to drop a plan, change coverage levels, drop a dependent from a plan, etc.).  We also believed that the COBRA regs were clear in stating that plan rates must be “fixed in advance” of each annual determination period (the annual 12-month period during which COBRA premium rates must be fixed and cannot be changed).  Since our employer clients typically set their determination periods to be the same as their plan years, we clearly advised our clients that (a) they needed to get us their new rates for a new plan year / determination period at least 30 days in advance of the new plan year, or (b) if they failed to do so they would need to subsidize any difference in rates for the period of time between the start of the new plan year and the date on which we would apply the new rates to any existing QBs (which would be at least 30 days after we were notified of the new rates to allow us to properly notify the QBs).

The “agents” you mention could be relying upon the part of the COBRA regs which clearly states that you may increase a QB’s premium during a determination period if the QB is not currently paying the maximum rate plus the 2% administration fee.  In other words, the employer set the new rates in advance of the determination period, and just because they didn’t tell you (their COBRA administrator) about the new plan rates until after the start of the new plan year / determination period, the QBs should still be required to pay these new rates.  We never disputed this point.  We did change rates when we received them, but on the advice of EBSA we didn’t apply the new rates until the first of the month after 30 days from the date we notified the QB of the change in rates.  We never applied a retroactive rate increase to a QB.

Again, this is an issue you may want to take to the EBSA/DOL yourself or consult counsel.  One solution we have seen work in some cases is to off-set the determination period and the plan year.  In other words, if a client has a plan year which starts January 1 each year, but they routinely fail to get you the new rates until December 30, have their determination period start February 1.  The downside to this is that since rates typically go up each year, the client will by default be subsidizing the difference between the old rates and the new rates for all QBs during the off-set period.  You also run the risk of an employer discontinuing a plan at the end of a plan year.  The better solution is to have the employer run their open enrollment period a little earlier to ensure they have time to get you new rates at least 30 days before the start of the new plan year.

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  • About

    Mark Waterstraat

    VP Sales

    Benaissance

    www.benaissance.com

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