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.

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.

For employers, it’s a no muss, no fuss way to reduce your COBRA rolls and paperwork. The COBRA notice recipient simply declines COBRA and lines up his or her own temporary coverage.

But the plans aren’t right for everyone. Here are four need-to-know issues:

• Plan expiration. Coverage under a short-term plan runs out faster than COBRA. While some policies offer coverage for up to a year, the majority run out within six months. The ideal temporary coverage enrollee is someone who expects to have a source of full-time coverage available in a month or two.

• Intended for major medical issues. In most cases, short-term plans health plans aren’t designed to meet routine healthcare needs. Rather, theyre there to cover serious injury or sudden illness.

• Service limitations. While the plans often cover an array of high-cost medical issues (hospitalization, emergency surgery, etc) and prescription drugs, some major services most notably pre-natal care may be excluded.

• Deductibles. While the plans often carry much lower premiums than COBRA, they often come with high deductibles. Once deductibles come into play, it may cost the employee less money out-of-pocket to accept COBRA.