A common question among Employers and Insurance Brokers alike is "How do we calculate the HRA rates for next year?". In this post we'll give you some insight to determining HRA premiums for COBRA.
A Healthcare Reimbursement Arrangement (HRA) is subject to Federal COBRA
requirements. HRA's may be offered under COBRA when any type of COBRA qualifying event occurs so long as the qualified beneficiary was enrolled in an HRA at the time of the qualifying event.
Please Note: This post is meant to be a helpful tool for our clients but is by no means legal or actuarial advisement. CobraHelp is not an actuary and our Clients are ultimately responsible for calculating their HRA rates.
How to Determine HRA rates:
The employer has two options for determining the premium for the HRA plan. The HRA Premium can be determined by either the “Past-Cost” method
(utilization) or the “Actuarial” method. The actuarial method is typically used by first time plans which retain an actuary or administrator to make a reasonable estimate of the cost of providing HRA plans.
The COBRA law does not require that one must hire an actuary, but CobraHelp recommends this method due to the potential for a Qualified Beneficiary to challenge the COBRA premium as being too high. If the latter were to occur, the employer would likely need to have an actuary defend the cost and structure of the HRA.
This common example is used as a helpful tool in determining what an employer's HRA premium should be for the year.
Let's say the HRA is reimbursing the first half of a $1,000 Single/$2,000 Family deductible. The HRA would
reimburse an employee with single coverage up to $500 per annually and an employee with two person or family coverage up to $1,000 annually. When determining the Employer’s cost of having an
HRA for a year, the HRA utilization should be taken into account as well as any administrative fees associated with the plan. Many employers use a estimate of 40% of HRA contribution as an appropriate starting point when determining their exposure plus administrative fees.
In the example provided, the single coverage would be $500 X 40% = $200 annually for single coverage.
If the employer or COBRA vendor are charging a 2% administration fee as allowable by Federal law, the annual rate for single coverage in this case would be $204 per year or $17 per month.
Using the same example, the two-person or family coverage would be $1,000 X 40% = $400 annual premium
for two-person or family coverage. If the allowable 2% COBRA administration fee is applied, the rate would be $408 per year or $34 per month.