🇺🇸United States

Under‑Collection of COBRA Premiums and Administrative Fees

2 verified sources

Definition

COBRA rules allow employers to charge up to 102% of the applicable premium (including an administrative fee), but errors in premium calculations or missed billing cycles lead to under‑collection. Guidance notes that improper premium calculations and inconsistent tracking of election and payment periods are among the most frequent COBRA administration mistakes.

Key Findings

  • Financial Impact: $10,000–$100,000 per year in lost premiums and admin fees for a 500–2,000 life plan depending on COBRA enrollment volume and error rate
  • Frequency: Monthly
  • Root Cause: Manual billing setups, failure to update COBRA rates when group premiums change, and lack of integrated payment tracking with payroll/benefits systems cause ongoing discrepancies; small under‑charges per member accumulate across many months and participants.

Why This Matters

This pain point represents a significant opportunity for B2B solutions targeting Insurance and Employee Benefit Funds.

Affected Stakeholders

Benefits Billing Specialist, COBRA Administrator, Payroll Manager, AR / Billing Department, Third‑Party COBRA TPA

Deep Analysis (Premium)

Financial Impact

$10,000–$100,000 per year in lost premiums and admin fees • $10,000–$100,000 per year in lost premiums and admin fees plus audit penalties • $10,000–$50,000 per year in under-collected premiums and foregone 2% admin fees, which is material given nonprofit operating margins.

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Current Workarounds

Benefits manager coordinates with actuaries, carriers, and payroll to create updated rate sheets, then manually updates COBRA spreadsheets and template letters while relying on staff memory to apply the new rates to active COBRA participants. • Central benefits team exports eligibility from the PEO platform, uses master Excel workbooks to calculate the 102% COBRA rates by client and plan, and tracks elections, due dates, and terminations manually, often reconciled only when clients complain or carriers flag discrepancies. • Combines carrier rate tables, employer contribution schedules, and existing COBRA participant lists in large spreadsheets; manually applies formulas to derive the 102% COBRA premium and uploads CSVs into a legacy admin system.

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Methodology & Sources

Data collected via OSINT from regulatory filings, industry audits, and verified case studies.

Evidence Sources:

Related Business Risks

Statutory Penalties for Late or Defective COBRA Notices

$50,000–$500,000+ per year for mid‑size employers with repeated notice failures (IRS $100/day/beneficiary excise tax exposure plus ERISA penalties and legal fees; systemic issues over multiple years can run into the millions in aggregate across the industry)

Liability for Uncovered Medical Claims When COBRA Is Not Properly Offered

$25,000–$250,000+ per incident depending on the claimant’s medical costs, with recurring exposure annually for employers with systemic COBRA failures

IRS Excise Taxes for Systemic COBRA Administration Violations

$36,500 per beneficiary per year at $100/day, with multi‑year systemic failures across dozens of beneficiaries quickly exceeding $1,000,000 in aggregate exposure

Slow and Missed COBRA Premium Collections Due to Manual Tracking

$5,000–$50,000 per year in delayed cash receipts and small write‑offs for mid‑size employers; higher for large plans with hundreds of COBRA participants

HR and Benefits Capacity Consumed by Manual COBRA Notification Work

$30,000–$150,000 per year in labor opportunity cost for a mid‑size employer (0.25–1.0 FTE of benefits staff time diverted to routine COBRA tasks) plus TPA outsourcing fees mainly justified by inefficiencies of in‑house processes

Rework from Incorrect or Incomplete COBRA Notices

$10,000–$75,000 per year in staff time, postage, and legal review for mid‑size employers with recurring notice template issues; significantly higher if defects trigger class‑style claims or extended liability windows

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