Returned checks for COBRA

[Guest ABRAHAM]

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!

[Guest jreddi]

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.

[Kirk Maldonado]

Read the regulations. They expressly deal with this topic.

[Guest mls]

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.

[jeanine]

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?

[Guest ScottN]

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.

[Guest bradecki]

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!)