Life & Health Insurance Exam (National Portion)Federal RegulationsMedium
An individual recently left their job and is now paying for COBRA continuation coverage for their health insurance. They are required to pay 102% of the full premium cost. What does the extra 2% typically cover?
- AAn administrative fee charged by the employer.
- BA federal tax levied on COBRA beneficiaries.
- CAdditional coverage for a pre-existing condition.
- DA state-mandated surcharge for unemployment benefits.
Show answer & explanationAnswer & explanation
Correct answer: A. An administrative fee charged by the employer.
Under COBRA, qualified beneficiaries can be required to pay the entire cost of the coverage, plus an administrative fee of up to 2%. This 2% covers the employer's costs associated with administering COBRA.
Why the other options are wrong
- B. There is no specific federal tax on COBRA beneficiaries for this 2%.
- C. The 2% is an administrative fee, not related to pre-existing conditions, which are generally covered under COBRA if they were covered under the original plan.
- D. This is not a state-mandated surcharge for unemployment benefits; it's a federal COBRA provision related to health coverage.
COBRA Premium Cost
COBRA beneficiaries typically pay 100% of the premium (employer and employee share) plus an additional 2% administrative fee.
- Total cost can be up to 102% of the premium.
- The 2% covers administrative expenses.
- The employer is no longer subsidizing the premium.
Memory trick: COBRA's bite is 102, 100 for the plan, 2 for the crew.