Estimate the applicable premium for self-insured group health plans using the Past Claims Method.
Adjusted Annual Plan Cost:
Base Monthly Rate (per life):
Final COBRA Premium (102%):
*Calculation includes the statutory 2% administrative surcharge allowed under ERISA/IRS guidelines.
How to Calculate COBRA Premiums for Self-Funded Health Plans
Unlike fully insured plans where the COBRA rate is simply the premium charged by the insurance carrier, self-funded (self-insured) plans must calculate an "applicable premium" that reflects the cost to the plan for similarly situated individuals. Federal law provides two primary methods for this: the Actuarial Method and the Past Claims Method.
The Past Claims Method
The Past Claims Method is the most common approach for self-funded employers. It involves looking at the costs incurred by the plan during a previous 12-month period and adjusting them for inflation and administrative expenses. The steps include:
Aggregate Total Costs: Sum all paid medical claims, prescription drug costs, and stop-loss insurance premiums paid during the determination period.
Add Administrative Expenses: Include fees paid to Third-Party Administrators (TPAs), network access fees, and broker commissions.
Apply a Trend Factor: Adjust the historical data for medical inflation and expected plan changes for the upcoming year.
Divide by Covered Lives: Divide the total adjusted cost by the average number of participants to find the cost per person.
Add the 2% Administrative Surcharge: COBRA regulations allow employers to charge 102% of the plan cost to the qualified beneficiary.
Realistic Calculation Example
Component
Value
Total Paid Claims (12 mo)
$1,200,000
Stop-Loss & Admin Fees
$150,000
Trend Adjustment (6%)
$81,000
Total Adjusted Cost
$1,431,000
Average Participants
200
Monthly COBRA Rate
$608.18
Legal Compliance and Timing
Under IRS guidelines, the COBRA rate must be determined before the beginning of the "determination period" (usually the plan year). Once the rate is set for a 12-month period, it typically cannot be changed until the next plan year, even if claims fluctuate significantly. Failing to calculate these rates accurately can lead to excise taxes or litigation under ERISA.
function calculateCobraRate() {
var claims = parseFloat(document.getElementById('claimsPaid').value);
var admin = parseFloat(document.getElementById('adminFees').value);
var stopLoss = parseFloat(document.getElementById('stopLoss').value);
var trend = parseFloat(document.getElementById('trendFactor').value);
var lives = parseFloat(document.getElementById('coveredLives').value);
if (isNaN(claims) || isNaN(admin) || isNaN(stopLoss) || isNaN(lives) || lives <= 0) {
alert("Please enter valid positive numbers for all fields.");
return;
}
// 1. Calculate Base Annual Cost
var annualSubtotal = claims + admin + stopLoss;
// 2. Apply Trend Factor (Inflation)
var trendMultiplier = 1 + (trend / 100);
var totalAdjustedAnnual = annualSubtotal * trendMultiplier;
// 3. Calculate Monthly Cost per Life
var monthlyBase = totalAdjustedAnnual / lives / 12;
// 4. Add 2% COBRA Administrative Surcharge
var finalCobraPremium = monthlyBase * 1.02;
// Display results
document.getElementById('resAnnualCost').innerText = "$" + totalAdjustedAnnual.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('resMonthlyBase').innerText = "$" + monthlyBase.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('resFinalPremium').innerText = "$" + finalCobraPremium.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}) + " per month";
document.getElementById('cobraResult').style.display = 'block';
}