Are employers allowed to increase COBRA premium rates whenever the active employee premium rates increase?

July 02, 2024

No. Both fully insured and self-insured plans must determine the applicable premium for each 12-month COBRA determination period before the beginning of the period and cannot increase the applicable premium during the determination period. In other words, plan sponsors that experience rate changes during a 12-month determination period (e.g., if the policy year and determination period start and end at different times) generally will not be able to pass along rate increases to COBRA participants during the determination period. 

There are only three instances in which a plan may increase the COBRA premium charged to a qualified beneficiary during the 12-month determination period: 

• If the qualified beneficiary qualifies for a disability extension, the rate can be increased to 150% of the applicable premium during the 11-month extension. 
• If the plan is not currently charging the maximum allowable amount (102% of the applicable premium), the rate can be raised to that maximum allowable amount as determined at the beginning of the determination period. 
• If a qualified beneficiary elects a different benefit package during the determination period (such as due to a midyear election change event), the plan can use the applicable premium for the different benefit package as determined at the beginning of the determination period. 

It may be permissible for employers to select a new COBRA determination period if the decision is supported by a business reason or significant plan change (e.g., short plan year or change in policy coverage period), so long as the employer intends to use the new 12-month determination period indefinitely. However, an employer’s decision to modify its determination period because of higher-than-expected costs contradicts COBRA’s 12-month determination period requirement. Given the lack of definitive guidance, employers should consult with legal counsel before adjusting a 12-month determination period.