COBRA Short Payment Rule
Normally, if you fail to pay the premiums on a COBRA, your employer can terminate your health insurance coverage. The exception to this rule is commonly known as the “short payment rule” and that is when your payment is less than the full premiums but above a special limit. How short your payment can be is the lesser of $50 or 10% of your monthly health insurance premiums. Let take a look at some examples…
Example 1: Jack normally pays $400 per month for COBRA health insurance coverage but this month he’s a little short. If Jack pays $361, which puts him $39 short (less than 10%, which is $40), his employer may not terminate health insurance coverage. If Jack pays $359, which puts him $41 short, his employer can terminate his coverage.
Example 2: Steve normally pays $600 per month for COBRA health insurance coverage, but this month he can only pay $549, which is $51 short, so his employer can terminate his insurance. The 10% rule does not apply because 10% of $600 ($60) is more than $50, so they use $50 as the short payment amount.
With a short payment, the employer can:
- Accept it as full payment.
- Accept payment but notify the insured that they are short and give them 30 days to make up the difference.
Why would a company accept it as full payment when it’s clearly not? Because sometimes it costs more to go after someone for the payment than it does just to let it go.