Hi,

Does anybody have a protocol for dealing with COBRA employees who have their checks returned when we try to deposit them? Thanks in advance!

As you know, COBRA payments are due on the first of every month. The QB has a 30 day "grace period" after the first in which to pay the premiums. If the employee pays with a subsequently returned check, to my mind, s/he has not paid the premium. The employee must make a good faith effort at that point to make payment whole again within the original grace period. If s/he does not, I would not hesitate to cancel coverage after the end of the grace period.

Read the regulations. They expressly deal with this topic.

We realize that at times, our employees may have inadvertently sent in a "bad" check. We send a letter to the employee requesting that they replace the check within a certain amount of days (usually 10)and we require check or money order.

Any suggestions for short payment checks? I know this topic was brought up at a June 8 IRS hearing regarding COBRA 2000 but my impression was there was no consensus about was short enough to trigger cancellation. I favor the 2% approach but management wants a dollar amount. Any upsides or downsides?

Some of my clients and the Cobra TPA I like to use most often are using $10.00. They like the dollar amount rather than a percentage because as rates increase they do not have a higher amount or the added administration of calculating the amount. The same applies to Cobra participants with family coverage versus individual.

I would be very careful about using a fixed dollar amount for the short premium rule. In the preamble to the regulations, the IRS gives an example of a payment where the QB "transposes the digits on the check". According to the IRS this would be a time that the employer need to give the QB a written notice. This could be a difference of more than $10. I think you need to look at each case carefully. The $10 is a fine place to start, as a general rule...as long as you are willing to be flexible. This rule is bound to end up in court a few times unless the IRS clarifies "insignificant" (It is stupid to write a rule like this without that definition, but it is all we have for now!)