"Partial payments cannot be accepted and will be returned. This will result in cancellation of your coverage with no possibility for reinstatement if full payment is not made within the grace period."

• 1999 COBRA Final Regulations: In its 1999 final regulations, applicable to plan years beginning on or after January 1, 2000, the IRS attempted to eliminate the hardship to beneficiaries that occurred when their coverage was canceled due to "not significant" shortages in their COBRA payments. Under the regulations, when plans receive a COBRA premium payment that is short a not significant amount, the plan has two choices: It must accept the significant partial payment as payment-in-full, or, in the alternative, send a notice of underpayment to the beneficiary and provide a "reasonable" amount of additional time in which to pay the amount of the deficiency.

"Many individuals have inquired about a plan's right to discontinue their COBRA continuation coverage because the amount of the payment made was short by an amount that is not significant. Sometimes the error has been clearly one of transposed digits on a check tendered for payment; in other instances, payment has been short by such a small amount that it would be unreasonable to attribute the shortfall to anything other than mistake. The final regulations establish a mechanism for the treatment of payments that are short by an insignificant amount. Either the plan must treat the payment as satisfying the plan's payment requirement or it must notify the qualified beneficiary of the amount of the deficiency and grant a reasonable period of time for the deficiency to be paid. The final regulations provide that, as a safe harbor, a period of 30 days is deemed to be a reasonable period for this purpose."

• 2001 COBRA Final Regulations: In its 2001 final regulations, applicable to qualifying events occurring on or after January 1, 2002, the IRS specified that a shortfall is insignificant if it is no greater than the lesser of $50 or 10 percent of the required amount.
  
  For example: If a COBRA beneficiary owes a monthly premium of $300, but submits only $275, the $25 deficiency is not significant because it is less than 10 percent of the entire amount due. The plan must either accept the $275 payment as payment in full for the COBRA premium due that month, or notify the beneficiary that there is a $25 unpaid balance and provide a minimum of 30 days from the date of that notice in which to pay the deficiency. Despite requests from the public, the IRS declined to shorten the 30-day safe harbor period for timely payment of a premium shortfall. Although it indicated that a shorter period may be reasonable under particular circumstances, it did not think it would suffice in all cases.

1. All notices and plan documents should specifically spell out the procedures used when partial payments are received, including methods to determine the correct premium due date, the grace period, and how "insignificant" underpayments are calculated;
2. Premium due dates, payment receipt dates, and amounts owed and received should be carefully documented for each beneficiary. This is not only necessary for proper compliance with the "not significant" overpayment regulation -- it is especially important when called upon to justify the cancellation of coverage due to a significant underpayment; and
3. A notice of underpayment should be sent out promptly to avoid long grace periods because the additional 30-day period begins to run from the date the notice is sent. The notice should precisely states the amount of the deficiency and the due date on which it must be paid before COBRA coverage will be canceled.

• COBRA OnQue automatically calculates the precise amount of a deficiency in the premium payment.

• If the deficiency falls within the IRS limitations of an "insignificant" payment, then a Notice of Partial Premium Payment Received is automatically generated.

• Each beneficiary's payment record is automatically documented.