Background
The most prevalent COBRA Services pricing convention in the benefits marketplace is a “Per Employee, Per Month” (PEPM) fee, also known as a “Capitation Fee” or “Capitation.”
The less prevalent pricing convention for COBRA Services is the “On-Demand Fee” also referred to as a “Per Transaction Fee” or “Fee for Service”.
Capitation Fee and Fee for Service Explained
In a Capitation Fee model, the COBRA service provider charges a monthly fee for each full-time employee regardless of the number of COBRA-related transactions in a month.
The client must pay a monthly fee even if there is no qualifying event or other COBRA transaction during the month. For example, if COBRA Service Provider ‘A’ charges a $1.50 PEPM and Client ‘Z’ has 50 full-time employees, Client ‘Z’ must pay $75.00 for the month ($900/year).
In a Fee for Service model, the COBRA service provider charges a flat fee per transaction. If there is no transaction in a month, there are no charges for that month.
For example, if COBRA Service Provider ‘B’ charges Client ‘Y’ $34 for processing a Qualifying Event Letter and a Client ‘Y’ requires four qualifying event letters in a year, Client Y would pay $136 for the year.
Industry Convention
The industry convention is for COBRA service providers to charge their clients Per Employee Per Month Capitation Fees for COBRA services because it provides the service providers consistent monthly revenue irrespective of work performed (or not performed).
The “better” or more cost-effective COBRA services pricing model is a Fee for Service model because the Fee-for-Service/On-Demand Services model is markedly less expensive than the Capitation model.
|
F-T Employees |
Employee Terminations Annually (using 18% turnover rate) |
Capitation Cost/Year $1.50 PEPM |
Fee for Service Cost/Year $34/Qualifying Event Letter |
Fee-for-Service Savings Over Capitation Fees |
|
20 |
4 |
$360.00 |
$136.00 |
$224.60 |
|
50 |
9 |
$900.00 |
$306.00 |
$594.00 |
|
125 |
23 |
$2,250.00 |
$782.00 |
$1,468.00 |
|
350 |
63 |
$6,300.00 |
$2,142.00 |
$4,158.00 |
|
500 |
90 |
$9,000.00 |
$3,060.00 |
$ 5,940.00 |
How Can Fee for Service COBRA Service Providers Charge Less than Other Providers?
The answer is quite simple: the basis for COBRA services is predicated on COBRA regulations that mandate specific requirements.
These requirements are not modifiable and are repeatable across all employer groups regardless of employee counts.
Therefore, a COBRA service provider that has well-honed, efficient, and highly automated systems and processes can deliver high quality, timely and accurate services at a fraction of the cost charged by COBRA service providers employing a Capitation Fee construct.
BAS Cobra Control Services
For more than 25 years, BAS and its wholly owned subsidiary Cobra Control Services, LLC (“CSS”) have been providing complete COBRA administration services based on the less expensive Fee-for-Service/On-Demand pricing model. BAS/CCS clients receive consistent, timely, accurate, and verifiable services year after year. Services include:
- General Rights Notices Print/Mail/Archive
- Qualifying Event Notices Print/Mail/Archive
- Premium Billing, Collection & Remittance
- Online Account Administration
- Automated Payroll/Census File Processing
- Comprehensive Reporting
- Toll-Free Customer Service
For more information about BAS’ on-demand COBRA services, contact your account manager or email solutions@basusa.com.
