Employers who self administrator and TPAs (Third party administrators) will terminate your COBRA coverage if you do not pay your premiums within the stated grace period. This is allowed under COBRA regulations. Regulations also do not require TPAs to send coupons,invoices, premium due bills, send notices of premium due dates, to inform participants payments are overdue, or even notify them of an impending loss of coverage for failure to pay premiums. But, since January 2000, you are legally bound by special rules when faced with the receipt of partial premium payments.
Health Insurance plans were canceled
Before 1999, the IRS did not have special administrative procedures for partial COBRA payments. So administrators would cancel a participants COBRA continuation coverage if they sent in less than the total amount due, They would refuse partial payments, no matter how slight the shortfall, treating them as if the enrollee had made no payment. Many health plan rules contained verbiage like "Partial payments will not be accepted and will be returned to the participant. Your coverage will be canceled with no possibility for reinstatement unless complete payment is before the grace period expires."
Any amount less than what's due would have gotten your family's health insurance canceled. This policy offered the employers and TPAs a way to end the COBRA coverage of participants, many of which had expensive medical issues. Plans could wait until right before the grace period ended, return the partial payment, then cancel coverage, with little chance of the participant beating the deadlines.
The IRS did two things to prevent abuse with partial COBRA payments, one in 1999 and then further clarification in 2001.
The IRS passed COBRA final Regulations in 1999 applicable to plan years beginning on or after January 1, 2000, the IRS tried to end hardships beneficiaries faced when their coverage was canceled because of insignificant shortfalls of their COBRA premium payments. When plans receive a COBRA premium amount that is short by an insignificant amount, the plan can (a) accept the significant partial payment as full payment or (b) send a notice of underpayment to the beneficiary and provide 30 days to pay the difference. The regulation does not cover large shortfalls, which will still be treated as non payment.
In the IRS COBRA Final Regulations of 2001, which applied to qualifying events occurring on or after January 1, 2002, the IRS specified a shortfall is no greater than the lesser of $50 or 10 percent of the required amount.
Example: A COBRA beneficiary owes a monthly premium of $500, but sends a check for $460, the $40 shortfall is insignificant because it is less than 10% ($50) of the total premium remaining due. The plan must either accept the $460 payment as payment in full for that month's COBRA, or notify the beneficiary that there is a remaining $40 balance and give them at least 30 days from the date the notice was sent to pay the shortfall.
Protect your COBRA rights
Use the below to avoid lawsuits and help your former employer avoid IRS penalties. To avoid your coverage being cancelled due to an insignificant underpayment:
Keep all notices and make sure they disclose procedures used when partial payments are received, including calculating the due date to send in the correct premium, the grace period (30 days or longer), and how underpayments are calculated
Record premium due dates, the date your partial payment was cashed, and what amount is owed
Was the notice of underpayment sent out promptly to avoid long grace periods? The additional 30-day period starts to run from the date the notice is sent.
Did the notice state the correct exact amount of the deficiency and the due date on which it must be paid before COBRA coverage will be canceled?
Send in the requested amount asap.
Make sure your next months COBRA premium is accurate and is sent timely.Written by Craig J. Casey
Craig Casey is an Writer, Coach, Blogger, Husband, and Former Health Insurance Agent helping people on the web since 1999 with their health insurance problems.
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