HRAs can have multiple setups for their rates. These include:
Composite Rates: All employees within a company will pay the same premium for their HRA coverage regardless of age or health status. These rates are typically for plans that are based on family tier (Employee only, Employee + Spouse, Employee + Child, etc).
The IRS suggests a “rule-of-thumb” percentage for HRAs: a 75% – 80% range. In other words, if an HRA offers a $100.00 per month benefit (or $1,200 a year), then a reasonable COBRA premium for that HRA might be $75.00 to $80.00 per month. Based on current IRS guidance, a Plan Administrator cannot charge the level of the benefit itself (in this example, $100 per month).
For example:
If the HRA is funded at:
Employee Only: $1,000 annually
Employee + Spouse: $2,000 annually
Family: $3,000 annuallyThe monthly COBRA rates would be calculated at:
Employee only: (($1,000 x 75%)/12) = $62.50+ 2% administration fee
Employee + Spouse: (($2,000 x 75%)/12) = $125.00 + 2% administration fee
Family: (($3,000 x 75%)/12) = $187.50 + 2% administration fee
Tiered into Medical Plan: This would be if the employer wants the setup that requires enrollment in the HRA if the member elects to enroll in the medical plan (bundled). The employer will need to assign composite rates to both the medical and HRA plans with the same coverage level (Employee only, Employee + Spouse, Employee + Child, etc).
If the employer has such a plan design, the COBRA premium for a Medical plan + HRA arrangement would be the total of the premium for the Medical plan component and the HRA component.
Member-specific Rates: These are rates set for individual employees based on factors like classes of employees or location. They are commonly used for ICHRA and EBRHRA plan types.
The Actuarial Method is calculated using the benefit amount for each class by assuming a reasonable estimate of the cost of providing the coverage. This method would be used for the first year of the ICHRA because there is no available cost data from the past.
COBRA Premium= ICHRA/EBHRA monthly allowance + 2% administration fee
For example:
If the ICHRA was funded at $250 a month, the monthly COBRA rates would be calculated at:
COBRA Monthly Premium = $250 + 2% administrative fee or $255 per month
The Past Cost Method is used to calculate the COBRA premium with the following formula:
COBRA Premium = Average amount reimbursed per employee during the previous plan year + inflation factor + 2% administration fee
