The organization I work for currently pends all health insurance claims during the COBRA election period to ensure that we don't pay claims for an individual who may later decide to waive coverage. I have heard that it may be legal to send a sort of denial during this time frame stating that coverage has been suspended. Can anyone tell me if this is true, and what you do? Thanks in advance for your help.

Your COBRA notification letter should state that coverage will not be reinstated until payment is received either by you or your TPA. While this is sufficient notification to the qualified beneficiary that s/he no longer has coverage (albeit, temporarily if s/he elects COBRA later on), it doesn't sound like a bad idea to send the QB notice that his/her claims have been pended. It is all up to you if you have the time/energy to do that.