COBRA High Five Part III: The COBRA Premium Grace Period and Shortfalls

Question: How long do COBRA qualified beneficiaries have to make the required monthly premium payment, and what happens if there is a shortfall?

Short Answer: After making the initial premium payment, qualified beneficiaries must make the subsequent premium payments by the end of a 30-day grace period for each month of coverage. If there is an insignificant shortfall in the premium amount paid, the plan generally must provide a notice of deficiency and a 30-day period for the qualified beneficiary to pay the remaining balance.

Did you know that “COBRA” stands for the “Consolidated Omnibus Budget Reconciliation Act of 1985”? While the law is often referred to as “of 1986” based on its enactment date, the actual title in the law is “of 1985”. Rep. Pete Stark (D-CA) is generally credited with drafting the legislation and spearheading its passage. In honor of the 40^th anniversary of COBRA’s introduction in Congress on July 31, 1985, we are exploring a “High Five” selection of five key COBRA issues that employers are still grappling with 40 years later. Enjoy!

• COBRA High Five Part I: Independent Election Rights

• COBRA High Five Part II: The Notices of Unavailability and Termination of Coverage

General Rule: COBRA Qualifying Event for Continuation Coverage
Individuals have the right to continue group health plan coverage through COBRA upon experiencing a “qualifying event,” which is a loss of coverage triggered by one of the prescribed COBRA triggering events. Individuals who experience a COBRA qualifying event are referred to as “qualified beneficiaries”. Group health plans subject to COBRA include medical, dental, vision, health FSA, HRA, most EAPs, and certain wellness programs and on-site medical clinics.

There are two requirements for a COBRA qualifying event:

1. Loss of group health plan coverage;

2. Caused by a COBRA triggering event.

Not all losses of coverage are a COBRA qualifying event. Qualified beneficiaries have COBRA continuation coverage rights only if they experience a qualifying event. The event causing the individual’s loss of coverage must be one of the listed triggering events set forth by COBRA to constitute a qualifying event.

For more details:

• The COBRA Triggering Events

• Newfront COBRA for Employers Guide

The COBRA Election and Initial Premium Timeframes
The COBRA rules generally provide the following applicable timeframes:

44 Days: Election Notice to Qualified Beneficiary Deadline
Employers (group health plans) generally must provide a COBRA election notice to individuals who experience a qualifying event within 44 days from the loss of coverage.

• The rules provide 30 days for the employer to provide notice to the plan administrator.

• The rules provide 14 days for the plan administrator to provide the election notice to the qualified beneficiary.

• The DOL generally enforces these timeframes as a combined 44-day from loss of coverage limit.

60 Days: Election by Qualified Beneficiary Deadline
Employees and dependents who experience a COBRA qualifying event have 60 days from the date the COBRA election notice is “provided” to elect continuation coverage.

• The standard approach is that the 60-day clock is triggered when the COBRA election notice is mailed, but ambiguity surrounding the rule (and mixed court decisions) have caused some to be more cautious and treat the notice as “provided” on the date the notice is received.

45 Days: Initial Premium Payment Deadline
COBRA qualified beneficiaries have 45 days from the COBRA election date to make the first premium payment.

• Upon the qualified beneficiary’s timely COBRA election and initial premium payment, COBRA coverage is retroactive to the date active coverage was lost. In other words, COBRA provides continuous, seamless coverage despite the COBRA election/premium period after the loss of active coverage.

The 30-Day COBRA Premium Grace Period
Once the qualified beneficiary pays the initial COBRA premium within 45 days of the COBRA election, the plan must allow COBRA premiums to be paid in monthly installments. The COBRA rules permit the plan to offer additional alternative installment timeframes (e.g., weekly, quarterly, semiannually), but they rarely do so. Plans almost uniformly require that qualified beneficiaries pay the COBRA premium each month.

The plan must set a monthly premium due date for the qualified beneficiary to pay for each month of COBRA coverage. COBRA provides that any such payment installment “shall be considered to be timely if made within 30 days after the due date or within such longer period as applies to or under the plan,” which means that each due date has at least a 30-day grace period for the qualified beneficiary to make the required premium payment. Most plans set the premium due date as the first day of the COBRA coverage month, with the grace period allowing the qualified beneficiary to make timely payment by 30 days thereafter. Payment is considered made on the date it is sent to the plan, which is generally the postmark date if sent by mail.

It is very unusual for a plan to offer a grace period that extends beyond 30 days. Any such approach would need to be confirmed by the insurance carrier or stop-loss provider, as well as the COBRA TPA.

Example 1:

• Michael retires at a relatively young age from Veytric Inc. to relax in Idaho.

• He timely elects and pays the initial premium for COBRA coverage after termination from employment.

• The Veytric Inc. group health plan follows the standard approach of imposing a monthly COBRA premium due date on the first day of each month.

• Michael pays the July COBRA premium on July 26.

Result 1:

• Although Michael did not pay the July COBRA premium the July 1 deadline, the plan must provide a 30-day grace period to make payment.

• When factoring in the grace period, Michael had an outer deadline of July 30 (30 days after the July 1 due date) to make the July premium payment.

• Michael’s July premium payment is therefore timely, and the Veytric Inc. plan must continue his COBRA coverage for the month.

Avoiding Inadvertent COBRA Premium Extensions Beyond 30 Days
Employers should be careful to ensure that plan materials do not refer to the premium due date as 30 days after the start of the month. Given that the grace period applies “30 days after the due date,” any such provision could result in the 30-day grace period starting only after that extended due date. In other words, the premium due date should always be the plan’s stated due date (generally the first of the month), with any description of the 30-day grace period making clear that it applies only after that stated due date.

In one case, the plan materials stated that “premium payments must be received by the end of the coverage month.” The court in the case found that there was at least a reasonable argument that the 30-day grace period under those plan terms would not begin to run until the end of the coverage month, because that was the stated due date for the premium. (Washicheck v. Ultimate Ltd., 231 F.R.D. 550 (W.D. Wis. 2005)).

The qualified beneficiary in that case therefore had a November 30 due date to pay the COBRA premium for November, followed by a 30-day grace period to December 30 for timely payment. This effectively created an inadvertent 60-day grace period by the plan terms. The flub caused the court to deny the employer’s motion to dismiss because “a reasonable fact finder could return a verdict for the [qualified beneficiary]” who made payment more than 30 days following the start of the month, but within 30 days of the end of the month.

COBRA Coverage During the Grace Period
Plans have two options for how to address the qualified beneficiary’s COBRA coverage status during the 30-day grace period:

1. Continue Coverage: The plan continues coverage during the payment grace period, then retroactively cancels coverage for nonpayment for failure to timely pay by the end of the 30-day period; or

2. Terminate Coverage: The plan cancels coverage during the grace period (i.e., after the monthly due date), then retroactively reinstates coverage upon timely payment of the premium by the end of the 30-day period.

If a provider contacts the plan to confirm the qualified beneficiary’s coverage during the grace period, the plan must give a complete response so the provider is aware of the potential risk to receive payment from the plan. For example, if the plan takes the first approach of continuing coverage during the grace period but retroactively cancelling if the qualified beneficiary fails to make the payment by the end of the grace period, the plan must inform the provider that coverage is subject to such retroactive termination back to the due date.

If the plan takes the second approach of terminating coverage during the grace period but retroactively reinstating if the qualified beneficiary makes the payment by the end of the grace period, the plan must inform the provider that the qualified beneficiary currently does not have coverage but may have it reinstated retroactively to the due date upon timely receipt of the premium payment.

COBRA Premium Shortfalls
The standard rule is that the plan can terminate COBRA coverage for a qualified beneficiary who does not timely pay the required premium for the period of coverage by the applicable 30-day grace period. The plan can terminate coverage retroactively to the first day of the period for which timely payment is not made.

• Note: Although the ACA prohibits rescission (i.e. retroactive terminations of coverage) outside of fraud or an intentional misrepresentation of material fact, tri-agency FAQ guidance confirms this prohibition does not extend to the COBRA context.

Special rules apply if the qualified beneficiary makes a COBRA premium payment that is short by an insignificant amount. This may occur, for example, where the premium changes for the new COBRA determination period, but the qualified beneficiary mistakenly pays the previously applicable premium amount.

The COBRA rules deem a premium payment shortfall as not “significant” if it is no greater than the lesser of:

1. $50, or

2. 10% of the full premium amount required for the period of coverage.

In these insignificant premium shortfall situations, the plan has two options for how to address the shortfall:

1. Accept the Short Payment: The plan can deem the payment received to be a full payment of the required COBRA premium for the month; or

2. Notice of Deficiency: The plan can send the qualified beneficiary a notice of the shortfall and provide a “reasonable period” for repayment of the deficiency.

The COBRA regulations provide that a 30-day period after the notice of deficiency satisfies this “reasonable period” standard for the qualified beneficiary to pay the shortfall.

Example 2:

• Tara terminates from Elgen Inc. in 2025 and elects COBRA to continue health coverage.

• The required COBRA premium payment in 2025 is $475 per month.

• The COBRA TPA properly notifies her of an increase in the premium to $510 per month as of the start of 2026, with the first premium due January 1.

• Tara mistakenly pays $475 on January 22, 2026, instead of the new $510 rate applicable for January.

Result 2:

• Although Tara made payment within the 30-day grace period, she did not make the full $510 payment.

• Elgen Inc.’s COBRA TPA determines that Tara’s premium payment for January is an insignificant shortfall because the $35 deficiency is no greater than $50 (which is less than 10% of premium, or $51).

• The COBRA TPA provides a notice of deficiency informing Tara of the shortfall and informing her that the plan must receive the $35 balance owed within 30 days of the notice to continue COBRA coverage.

• Failure to pay the balance owed within 30 days will result in Tara’s COBRA coverage terminating retroactively to January 1 (and a refund of the insufficient $475 payment).

Reminder: COBRA Grace Period Exceptions Generally Not Recommended
There are two main issues for employers to consider upon receiving a request to permit a late COBRA premium payment after the applicable deadline and 30-day grace period:

1. The Insurance Carrier/Stop-Loss Provider Limitations; and

2. The ERISA Plan Precedent.

These issues associated with making an exception in most cases far outweigh the typical hardship case or other motivation presented by the individual requesting the COBRA premium deadline exception.

• For more details: How to Address Requests for a Late COBRA Election or Payment Exception

Stay tuned for the remainder of the COBRA High Five series!

Relevant Cites:
Treas. Reg. §54.4980B-8:
Q-5. What is timely payment for COBRA continuation coverage?
A-5. (a) Except as provided in this paragraph (a) or in paragraph (b) or (d) of this Q&A-5, timely payment for a period of COBRA continuation coverage under a group health plan means payment that is made to the plan by the date that is 30 days after the first day of that period.
…
(c) If, after COBRA continuation coverage has been elected for a qualified beneficiary, a provider of health care (such as a physician, hospital, or pharmacy) contacts the plan to confirm coverage of a qualified beneficiary for a period for which the plan has not yet received payment, the plan must give a complete response to the health care provider about the qualified beneficiary's COBRA continuation coverage rights, if any, described in paragraphs (a), (b), and (d) of this Q&A-5. For example, if the plan provides coverage during the 30- and 45-day grace periods described in paragraphs (a) and (b) of this Q&A-5 but cancels coverage retroactively if payment is not made by the end of the applicable grace period, then the plan must inform a provider with respect to a qualified beneficiary for whom payment has not been received that the qualified beneficiary is covered but that the coverage is subject to retroactive termination if timely payment is not made. Similarly, if the plan cancels coverage if it has not received payment by the first day of a period of coverage but retroactively reinstates coverage if payment is made by the end of the grace period for that period of coverage, then the plan must inform the provider that the qualified beneficiary currently does not have coverage but will have coverage retroactively to the first date of the period if timely payment is made. (See paragraph (b) of Q&A-3 in §54.4980B-6 for similar rules that the plan must follow in confirming coverage during the election period.)
(d) If timely payment is made to the plan in an amount that is not significantly less than the amount the plan requires to be paid for a period of coverage, then the amount paid is deemed to satisfy the plan's requirement for the amount that must be paid, unless the plan notifies the qualified beneficiary of the amount of the deficiency and grants a reasonable period of time for payment of the deficiency to be made. For this purpose, as a safe harbor, 30 days after the date the notice is provided is deemed to be a reasonable period of time. An amount is not significantly less than the amount the plan requires to be paid for a period of coverage if and only if the shortfall is no greater than the lesser of the following two amounts:
(1) Fifty dollars (or such other amount as the Commissioner may provide in a revenue ruling, notice, or other guidance published in the Internal Revenue Bulletin (see §601.601(d)(2)(ii) of this chapter)); or
(2) 10 percent of the amount the plan requires to be paid.
(e) Payment is considered made on the date on which it is sent to the plan.

DOL FAQs on COBRA Continuation Health Coverage for Employers; DOL Employer’s Guide to Group Health Continuation Coverage Under COBRA:
Plans cannot require qualified beneficiaries to pay a premium when they make the COBRA election. Plans must provide at least 45 days after the election (that is, the date the qualified beneficiary mails the election form if using first-class mail) for making an initial premium payment. If a qualified beneficiary fails to make any payment before the end of the initial 45- day period, the plan can terminate the qualified beneficiary’s COBRA rights. The plan should establish due dates for any premiums for subsequent periods of coverage, but it must provide a minimum 30-day grace period for each payment.

Plans can terminate continuation coverage if full payment is not received before the end of a grace period. If the amount of a payment made to the plan is incorrect, but is not significantly less than the amount due, the plan must notify the qualified beneficiary of the deficiency and grant a reasonable period (for this purpose, 30 days is considered reasonable) to pay the difference. The plan is not obligated to send monthly premium notices, but must provide a notice of early termination if it terminates continuation coverage early due to failure to make a timely payment.

Disclaimer: The intent of this analysis is to provide the recipient with general information regarding the status of, and/or potential concerns related to, the recipient’s current employee benefits issues. This analysis does not necessarily fully address the recipient’s specific issue, and it should not be construed as, nor is it intended to provide, legal advice. Furthermore, this message does not establish an attorney-client relationship. Questions regarding specific issues should be addressed to the person(s) who provide legal advice to the recipient regarding employee benefits issues (e.g., the recipient’s general counsel or an attorney hired by the recipient who specializes in employee benefits law).