We like to write about the “unseen mechanics” behind employee benefits, and COBRA fits that theme perfectly. When employees lose their job or experience another qualifying event, COBRA allows them to continue their group health insurance. Yet many employers and employees are unsure who actually pays for COBRA coverage, how those payments are collected, and what happens when payments are late or missed. Let’s break it down.Who Pays for COBRA?
Employee/Beneficiary Responsibility: In nearly all cases, the former employee (or dependent) pays the full COBRA premium. This includes:
– The employer’s former share of the premium
– The employee’s former share of the premium
– Up to 2% administrative fee (making the maximum charge 102% of the total premium)
Employer Exceptions: Some employers choose to subsidize COBRA for a period of time (e.g., during layoffs or severance packages), but this is voluntary.
Need help with COBRA compliance? Learn how fully insured plans simplify administration.
How COBRA Premiums Are Collected
– Payments are made directly by the qualified beneficiary to the plan administrator (employer, COBRA vendor, or TPA)
– Employers or TPAs must provide clear instructions in the COBRA election notice, including:
• Amount due each month
• Where to send payment
• Due dates and grace periods
– COBRA premiums are generally paid monthly, though plans may allow other frequencies
What If the Employee Doesn’t Pay?
– COBRA requires a 45-day initial payment window after election. If payment is not made, coverage can be terminated retroactively
– After the first payment, a 30-day grace period applies each month. If payment is not received by the end of the grace period, coverage may be terminated
– Employers/administrators must send a notice of termination for nonpayment, documenting the reason and effective date
– Once terminated for nonpayment, COBRA coverage cannot be reinstated
Handling Arrears and Late Payments
– COBRA allows coverage to be effective retroactively, but only if the participant pays all past-due premiums within the grace period
– If arrears are not paid in full, the employer or TPA must treat coverage as lapsed
– Employers must maintain proper documentation of billing and payment history in case of disputes
Do TPAs Handle COBRA Billing?
Yes — most employers outsource COBRA administration to Third-Party Administrators (TPAs) or COBRA specialists. These vendors:
– Track qualifying events and send required notices
– Collect COBRA premiums on behalf of the employer
– Maintain eligibility and payment records
– Terminate coverage if payments are missed
– Handle compliance with IRS and Department of Labor timelines
Employers that try to handle COBRA in-house often struggle with missed notices, late billing, or noncompliance. Using a TPA minimizes risk and ensures consistency.
Special Considerations
– Masking COBRA Premiums: Some employers “mask” or subsidize COBRA premiums for a time, then transition the full cost to the employee. This must be clearly explained in the COBRA election notice.
– ACA Subsidies: In some cases, it may be cheaper for an employee to purchase coverage on the Exchange, but COBRA must still be offered.
Key Takeaway
Employers are not required to pay for COBRA unless they voluntarily choose to subsidize. Employees (or dependents) typically pay 102% of the plan premium, and failure to pay results in termination of coverage after grace periods. TPAs or COBRA administrators handle billing, collection, notices, and compliance to reduce employer liability.
Memberly’s Role
Memberly partners with employers to:
– Coordinate COBRA compliance with TPAs
– Ensure timely billing and collection of premiums
– Provide templates and notices for nonpayment or termination
– Help employers design subsidy or masking strategies during layoffs or severance
📍 Need help managing COBRA billing and compliance? Contact Dom Maggiore at (631) 905-6555 | dom.maggiore@memberlybenefits.com or visit www.memberlybenefits.com.
Sample COBRA Termination Notice for Nonpayment
[Employer/Plan Administrator Letterhead]
Date: [Insert Date]
To: [Employee/Dependent Name]
Address: [Insert Address]
Dear [Employee/Dependent Name],
Our records indicate that your COBRA premium payments are past due and have not been received within the required grace period. As a result, your COBRA continuation coverage under the [Employer/Plan Name] group health plan will be terminated effective [Insert Date].
This termination is due to nonpayment of required premiums. Coverage cannot be reinstated once terminated for this reason. You may be eligible for other coverage options, such as enrolling through the Health Insurance Marketplace at www.healthcare.gov.
If you believe this notice is in error or you have proof of payment, please contact [Plan Administrator Contact Info] immediately.
Sincerely,
[Plan Administrator / Employer Representative]
Important Disclaimer
This article and sample notices are provided for educational purposes only and do not constitute legal advice. Employers should always check with their plan administrator and legal counsel before issuing COBRA notices or making determinations related to billing and payment.
