From the Hotline: COBRA Surcharge for Tobacco Use

Question: When charging COBRA rates, can we include the surcharge for tobacco user status in addition to the 102 percent of total premium? Or are we limited to the standard 102 percent?

Answer: Only the 100 percent premium plus 2 percent may be charged under the COBRA rate to the ex-employee. A tobacco surcharge cannot be added to COBRA premiums. In general, a tobacco surcharge should actually be a premium cost sharing discount for nonsmoking employees.

For example:

Total Premium: $500
Nonsmoker Pays: $100 ($100 nonsmoking discount applied)
Employer Pays: $400
COBRA Premium 102 percent: $510

Total Premium: $500
Smoker Pays: $200 ($100 nonsmoking discount not applied)
Employer Pays: $300
COBRA Premium 102 percent: $510

Under the federal COBRA rules, employers may only charge up to 102 percent of the actual premium (a maximum of 2 percent administration fee in addition to 100 percent of existing premium cost).

Please work with your broker regarding surcharges or wellness discounts to your plans and for further assistance in setting your COBRA rates.