COBRA’s premium payment rules took center stage Aug. 12, when the “Bamboozled” column in the New Jersey Star-Ledger reported that a qualified beneficiary with leukemia had his coverage terminated early because his premium payment was 26 cents short. The story had a happy ending, but employers and their service providers can avoid being the villains of such reports by brushing up on COBRA requirements.
The column described how Sergio Branco, who has leukemia, elected COBRA coverage after his termination of employment. His monthly premium was $518.26, but the first premium payment was made for $518 — 26 cents short. As a result, his coverage was cancelled. Sergio was scheduled to have a bone marrow transplant, so the Brancos contacted the U.S. Department of Labor and got attorneys involved in order to get his coverage reinstated. Ultimately, DOL told Mara the employer would retroactively reinstate Sergio’s coverage, so the family said it would not pursue litigation and the transplant was scheduled as planned.
The situation described in the Star-Ledger is a reminder of an important, and controversial, COBRA premium rule. The IRS’ final COBRA regulations establish special rules for COBRA premium payments that are short by an amount that is “not significant.” In such cases, a plan must choose between one of two options:
- treat the payment as satisfying the plan’s payment requirement as payment in full for COBRA coverage; or
- notify the qualified beneficiary of the deficiency amount and grant him or her a reasonable period (as a safe harbor, 30 days is deemed reasonable) to pay the shortfall.
The IRS regulations state the term “not significant” means the shortfall is not greater than the lesser of $50, or 10 percent of the amount to be paid.
Separately, Mara explained that Sergio was not notified about the early termination of his COBRA coverage. COBRA does not specifically require such a notice for situations involving the initial premium, as the case here. However, COBRA notice regulations from the U.S. Department of Labor require that a special notice be sent to qualified beneficiaries “as soon as practicable” when COBRA coverage is terminated once the 30-day grace period expires. The notice must explain why the coverage is terminating
Finally, the Brancos were told by a medical provider that Sergio had no coverage. Note that the IRS COBRA regulations specify that plan administrators must provide a “complete response” to medical providers during a premium grace period for payments regarding the qualified beneficiary’s COBRA coverage rights.
More details on this issue can be found in Mandated Health Benefits — the COBRA Guide, at http://hrcomplianceexpert.com.