The qualified beneficiary can make subsequent payments in monthly installments, due at the first of the month. However, you must provide a grace period, which is the later of:

• Within 30 days after beginning the monthly coverage period.
• The end of the allowed grace period for your payment of premiums.2 California insurance law stipulates a 31-day grace period.

COBRA rules explicitly state that a payment is considered made on the date the payment is sent to the plan. In most cases, the postmark will show if the payment was timely.

If the qualified beneficiary makes a timely payment that is incorrect but not significantly less than the required premium, the law states that the amount paid satisfies the premium requirement unless the plan notifies the qualified beneficiary of the deficiency and provides a reasonable period to make up the deficiency (safe harbor is 30 days).

Except for a disability extension, the COBRA premium is not to exceed 102 percent of the applicable premium. The COBRA premium must be computed by you and fixed before a 12-month determination period, typically corresponding to the policy or plan year. The COBRA premiums must remain level throughout the period except under certain circumstances.

With the exception of a few situations, you cannot adjust COBRA premium rates until the beginning of the next determination year.3

You can adjust premium rates during the determination year if:

• The qualified beneficiary is not charged the full applicable premium.
• The coverage is extended due to disability.
• A qualified beneficiary changes coverage, such as during an open enrollment period.

COBRA Premium Shortages

The law provides a mechanism for dealing with premium shortages. If premiums are short by an insignificant amount, the plan must either:

• Create a procedure for accepting payments as payments in full.
• Notify the sender that a shortage exists and provide a reasonable period for making up any deficiency.

An “insignificant shortage” is defined as no more than the lesser of:

• $50.
• 10 percent of the amount to be paid.4

Unless you are willing to absorb shortages, establish a procedure that allows for immediate notification of premium shortages to qualified beneficiaries. Given that, generally, at least a 30-day grace period (considered the “safe harbor period”) exists for paying premiums, in the case of a deficiency, you will be faced with extending the grace period more. You should develop an internal procedure for notifying your carriers or HMOs that you received only partial premium.

The regulations do not cover problems such as bounced checks, payments made to the wrong payee and other premium payment errors. Plan administrators can establish their own procedures for handling errors, including accepting only cash or certified checks.

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1. Treas. Reg. sec. 54.4980B-8, Q&A-4

2. Treas. Reg. sec. 54.4980B-8, Q&A-5

3. Treas. Reg. sec. 54.4980B-8, Q&A-2

4. Treas. Reg. sec. 54.4980B-8, Q&A-5