There are certain situations where an employer can terminate someone’s COBRA coverage early.

In most situations, employers are required to honor the full coverage period – most, but not all. Here’s a rundown of three of the most common cases when it’s OK to end coverage early, and reduce some administrative overhead.

1. Person doesn’t keep up with payments

COBRA participants are required to pay your full monthly charge (typically 102% of the premium). If they don’t come up with the money, you can end their coverage. But there are limits.

Underpayments of less than $50 or 10% of the premium are not enough to terminate COBRA on the spot. Instead, your HR/benefits department must:

• notify the ex-employee in writing about the shortfall, and
• allow him or her 30 days to send in the balance due to avoid cancellation.

If the participant still doesn’t make good, you’re in the clear to cut off COBRA coverage. Also, it’s good practice to specify that the check must arrive at your company within 30 days, not just be postmarked by the due date.

Under the terms of the feds’ COBRA subsidy, terminated employees can get a 65%  defrayment of the premium cost  for up to nine months. The subsidy applies only to people who lost (or will lose) their jobs between Sept. 1, 2008, and Dec. 31, 2009.

No money changes hands. People who qualify for the subsidy will pay their employers for 35% of the coverage costs each month, for up to nine months. If an employee continues with COBRA after the nine months, the payment goes up to full cost.

2. Beneficiary moves out of coverage area

This depends on your health plan’s coverage policy, but if a COBRA participant moves to an area outside the provider network, you may be able to terminate his or her eligibility.

The rule: If your plan offers any kind of coverage the participant can use in his or her new location, it’s the ex-employee’s call whether to continue or end COBRA. This includes health plans that cover out-of-area emergency services and referrals to specialists based in other locales.

But if there are no out-of-network provisions in your health plan, it’s legal for you to terminate coverage once you verify the change of locale.

Even so, many employers err on the side of caution and give the ex-employee the option of keeping COBRA and returning to the in-network area for medical treatments. Few people opt for this arrangement, and usually wind up being taken off the COBRA roll of their own accord.

3. Medicare enrollment

You can terminate COBRA for ex-employees once they’re entitled to Medicare benefits. But your company needs to be careful.

For COBRA purposes, federal courts have ruled “entitlement” means the ex-employee has actually enrolled in Medicare. Simply turning age 65 isn’t enough.

Tags: COBRA