COBRA Premium Reconciliation

COBRA billing doesn't behave like active-employee billing, and reconciling it against the same expectations produces constant false exceptions.

The differences are structural: coverage is retroactive to the date it would otherwise have been lost, the first payment can arrive more than three months after the qualifying event, and a lapse followed by reinstatement is expressly permitted.

Who is subject to COBRA

Employers that normally employed 20 or more employees in the preceding calendar year. The test: an employer normally employed fewer than 20 if - and only if - it had fewer than 20 employees on at least 50% of its typical business days during that year.

Part-time employees count fractionally. Each full-time employee counts as one; each part-timer counts as a fraction - hours worked over the hours required for full-time status, where the denominator may not exceed 8 hours a day or 40 hours a week. Self-employed individuals, independent contractors and corporate directors are excluded.

Once a plan is subject to COBRA, it stays subject for qualifying events occurring during that period even if the employer later shrinks.

Smaller employers may face state continuation laws - "mini-COBRA" - which generally operate on insurance contracts and so reach insured plans rather than self-funded ones.

The timeline

Step	Deadline	Runs from
Employer notifies plan administrator	30 days	Loss of coverage, or the qualifying event - depending on plan design
Administrator sends election notice	14 days	Receipt of the qualifying event notice
Where the employer is also the administrator	44 days	Loss of coverage or the qualifying event, per plan design
Qualified beneficiary elects	60 days	The later of loss of coverage or the notice date
Initial premium payment	45 days	The date of election
Subsequent monthly payments	30-day grace	The first day of the coverage period

Two things follow from this that reconciliation has to accommodate:

The maximum gap is long. 44 days to notify, plus 60 days to elect, plus 45 days to pay - a first payment can legitimately arrive around five months after the qualifying event.

The 30-day employer clock is plan-dependent. It runs from loss of coverage if the plan provides that COBRA commences then, and from the qualifying event date otherwise. Which one applies to you is a plan design question.

The election period, the grace period and the beneficiary notice periods are all statutory floors - plans may be more generous, never shorter. Build reconciliation logic against the floor.

The first invoice is retroactive by design

Once elected within the election period, coverage must be provided from the date it would otherwise have been lost. So the first payment commonly covers several months at once.

The regulations also expressly permit the lapse-and-reinstate pattern: a plan may terminate coverage and reinstate it when the election and payment are made. Claims incurred during the election period do not have to be paid before election and payment.

For reconciliation, this means a COBRA participant may legitimately show as terminated with the carrier, then reappear retroactively. That isn't an error, and treating it as one generates noise every month.

Premium rules

Up to 102% of the applicable premium - the cost including both employee and employer portions, plus 2% for administration.

Up to 150% for months 19 through 29 of a disability extension.

The applicable premium must be computed and fixed before the determination period begins - a 12-month period chosen by the plan and applied consistently year to year.

These are ceilings, not floors. An employer may charge less, including subsidising coverage entirely - a common severance term, and one that has to be reflected in reconciliation or it looks like underpayment.

Plans must allow monthly payment. Other intervals are permitted but optional.

The insignificant shortfall rule

A payment short by an insignificant amount cannot simply be rejected. A shortfall is insignificant if it is no greater than the lesser of $50 or 10% of the required amount. The plan must then notify the beneficiary of the deficiency and grant a reasonable period to pay - the Department of Labor states that 30 days is considered reasonable.

Reconciliation that flags underpayments should apply this test before anything is treated as a termination trigger.

Coverage periods

Duration	Triggering events
18 months	Termination of employment; reduction in hours
29 months	The above, plus an 11-month disability extension
36 months	Death of the employee; divorce or legal separation; loss of dependent child status; employer bankruptcy; Medicare entitlement of the employee (for spouse and dependents)

The disability extension requires a Social Security determination of disability at any time during the first 60 days of COBRA coverage, with notice given within 60 days of the determination and before the end of the original 18 months. It applies to all qualified beneficiaries in that family, not only the disabled individual.

The Medicare special rule: where the employee became entitled to Medicare before a termination or reduction of hours, other qualified beneficiaries get the later of 36 months from Medicare entitlement or 18 months from the termination.

Second qualifying events can extend an 18-month period to 36 months - with one important exception, stated plainly in the regulation: a termination of employment following a qualifying event that was a reduction of hours cannot be a second qualifying event.

Beneficiary notice obligations

Qualified beneficiaries have their own deadlines, all statutory floors:

• 60 days to notify the plan of divorce, legal separation, or a child ceasing to be a dependent
• 60 days for a disability determination, and before the end of the first 18 months
• 30 days to notify the plan when a beneficiary is no longer disabled

These matter for reconciliation because a beneficiary who fails to give notice may be billed for coverage they shouldn't have - or lose an extension they were entitled to.

When coverage may end early

• Premiums not paid in full on time
• The employer ceases to maintain any group health plan
• The beneficiary becomes covered under another group health plan after electing
• The beneficiary becomes entitled to Medicare after electing
• Fraud or conduct that would justify terminating a similarly situated active participant

The penalties are the real exposure

	Amount
ERISA notice penalty	$110 per day
Excise tax	$100 per day per qualified beneficiary
Excise tax cap, multiple beneficiaries, same event	$200 per day
Minimum after examination notice	$2,500, rising to $15,000 where failures are more than de minimis
Overall cap, unintentional failures	Lesser of 10% of prior-year group health spend or $500,000

A correction safe harbor applies where the failure was due to reasonable cause and not willful neglect and is corrected within 30 days of discovery.

One detail worth knowing: the $110 daily figure has been unchanged since 1997 - that penalty sits outside the annual inflation-adjustment regime that applies to other ERISA penalties.

The point for reconciliation: a missed COBRA notice costs far more than the premium. Termination reconciliation and COBRA notification should be the same workflow, not two.

Frequently asked questions

Why does the first COBRA invoice cover several months?

Coverage is retroactive to the date it would otherwise have been lost, and the election and payment windows are long.

How long does someone have to elect?

At least 60 days from the later of losing coverage or receiving the election notice.

How long to make the first payment?

At least 45 days after electing.

What's the grace period after that?

At least 30 days from the first day of each coverage period.

Can we reject a payment that's a few dollars short?

Not immediately. If the shortfall is no more than the lesser of $50 or 10%, you must notify and allow a reasonable period - 30 days is considered reasonable.

Can we charge more than 102%?

Only in months 19 through 29 of a disability extension, up to 150%.

Can we charge less?

Yes. 102% is a ceiling.

A COBRA participant shows as terminated then reinstated. Is that wrong?

No. Lapse and reinstatement on election and payment is expressly permitted.

Does a termination after a reduction in hours extend coverage to 36 months?

No. That specific sequence cannot be a second qualifying event.

How Praisidio fits

Praisidio connects payroll, HRIS and benefits data and runs the invoice-to-enrollment-to-deduction match on a schedule, so the exceptions arrive as a list rather than a discovery. See the reconciliation pillar or book a demo.