How is the COBRA premium amount determined?

• A. 100% of the group premium.
• B. 102% of the plan's cost of coverage to the employer.
• C. 102% plus any additional state taxes.
• D. 98% of the plan's cost.

Answer: (B)

COBRA premiums are set to recover the full cost of providing the group health coverage to a former employee, plus a small administration fee. The premium equals 102% of the plan’s cost of coverage to the employer—the amount the employer would pay to keep that person covered if they were still working. The extra 2% covers COBRA administration.

So, if the plan’s monthly cost for that coverage is $500 to the employer, the COBRA premium would be $510. The 2% admin fee is the reason it’s not just the full cost, but the full cost plus a small administration charge. The other options would either omit the admin fee, add taxes that aren’t part of the calculation, or understate the amount (by 2%).