Paying health premiums for former employees? How to get the money back

This article is general information about group health billing, not legal, tax or benefits advice. Plan rules, carrier policies and state laws vary. Confirm specifics with your carrier, broker or benefits advisor.

Why former employees stay on the bill

Former employees stay on the health insurance bill because terminating someone in payroll and terminating them with the carrier are two separate tasks, and in a small business they're often done by different people. Payroll stops their paycheck. Nobody tells the carrier.

Most small group plans are "list billed": the carrier sends one invoice listing every covered person and a premium for each. Many businesses pay the invoice total by autopay without comparing the list to who actually works there. The common causes:

• The termination was entered in payroll or HR software, but the software doesn't feed the carrier, or the feed failed.
• Someone emailed the broker, who didn't forward it, or the carrier never processed it.
• A seasonal or part-time worker drifted off the schedule without a formal termination.
• The person who handled benefits left, and the job didn't clearly move to anyone.

Because premiums are paid in advance for the month ahead, a missed termination can quietly cost hundreds or more than a thousand dollars per person per month, depending on the plan and coverage tier.

First, separate COBRA from billing errors

Not every former employee on the bill is a mistake. Someone who has elected COBRA continuation coverage, or who is still inside their election period, may correctly appear on the plan.

Federal COBRA generally applies to group health plans of employers with 20 or more employees, and many states have their own "mini-COBRA" rules that cover smaller groups, often administered by the carrier. Under federal COBRA, the qualified beneficiary usually has at least 60 days to elect coverage, and coverage elected during that window can be retroactive to the date it was lost. That's why carriers and administrators are careful with recent terminations.

COBRA premiums are normally paid by the former employee (up to 102% of the plan cost under federal rules), not by you. So the questions for each former employee on the bill are:

• Were they offered COBRA or state continuation, and did they elect it?
• If they elected it, who is paying the premium, and is that money reaching the carrier? If you're paying and they aren't reimbursing you, that's a separate problem to fix.
• If their election period has ended without an election, they should be terminated as of the date coverage ended under your plan, often the end of the month they left.

How to reconcile your invoice, step by step

Reconciling a group health invoice means matching every person the carrier bills you for against payroll records. For a 5 to 100 person business, it takes under an hour a month once the first one is done.

1. Gather three lists. The carrier's member-level invoice (download the detailed version, not just the summary), payroll's current active employee list, and the benefit deduction report showing each employee's coverage tier.
2. Match names. Every employee on the invoice should be active in payroll or a confirmed COBRA participant. Flag anyone who isn't.
3. Match tiers. Employee-only, employee plus spouse, employee plus children and family should be the same on the invoice and in payroll deductions.
4. Match dates. For each flagged person, record the termination date in payroll and the date coverage should have ended under your plan rules.
5. Check dependents. Look for dependents who should have come off, such as a child who aged out of coverage (under federal rules, dependent coverage for children generally runs to age 26) or a spouse after a divorce.
6. Check new hires. Make sure no one is billed before their eligibility date, and that waiting periods match your plan.
7. Total the overpayment. Months billed after coverage should have ended, times the monthly premium, per person.
8. Check other lines. Dental, vision, life and disability plans are often billed separately and have the same problem.

Other billing errors to check

Former employees are the biggest and most common leak, but a reconciliation usually turns up a few other kinds of error.

Error	How to spot it	Usual fix
Former employee still billed	Name on invoice, not active in payroll, not on COBRA	Retro termination and credit request
Wrong coverage tier	Invoice shows family, payroll deducts employee-only (or the reverse)	Tier correction; credit if overbilled
Dependent who should have come off	Child past the plan's age limit, former spouse	Remove dependent, request credit
Wrong rate	Premium doesn't match the renewal rate sheet, or an age-based rate changed mid-year	Ask carrier to rebill at the contracted rate
Duplicate member	Same person listed twice, often after a name change or rehire	Remove duplicate, request credit
Billed before eligibility	New hire billed during the waiting period	Correct effective date, request credit

Tier mismatches cut both ways. If payroll deducts less than the employee's share of the tier they're billed at, you're absorbing the difference. If the carrier bills a higher tier than the employee chose, you're overpaying the carrier.

How to request a retro credit

A retro credit is a credit the carrier issues for premiums you paid for coverage that should already have ended. Getting one is a written request with dates, sent quickly.

1. Send the termination in writing to the carrier's group billing contact or through your broker, with each person's name, member ID, last day worked and the coverage end date.
2. Ask for a retroactive termination to that date and a credit for every month billed after it. State the amount you calculated.
3. Confirm no claims were paid after the end date. If the former employee used the coverage, the carrier may refuse the credit for those months or reverse the claims, which creates a different problem for the former employee. Federal rules also limit retroactive cancellations in some situations, especially if the person kept paying premiums through payroll.
4. Get the answer in writing and check that the credit actually appears on a later invoice. Credits that are approved but never applied are common.
5. Escalate through your broker if the carrier doesn't respond. Brokers are usually paid commission on your plan and handling this is part of the service.

Illustrative example: a business finds two former employees still on employee-plus-spouse coverage at $1,150 per person per month, five months after they left. That's $11,500 paid for coverage nobody had. If the carrier only credits terminations going back 60 days, the business recovers $4,600 and the other $6,900 is gone. Had it been caught in the first monthly reconciliation, nearly all of it would have been recoverable. The figures are hypothetical; the time limit is the point.

A monthly routine that keeps the bill clean

The way to stop paying for former employees is to make carrier notice part of offboarding and to reconcile every invoice before it's paid.

• Add the carrier to your termination checklist. Final paycheck, equipment, system access, carrier notice and COBRA or state continuation notice, all on the same day.
• Name one owner for benefits billing, with a backup.
• Reconcile before paying. If the invoice is on autopay, reconcile in the first week of the month anyway.
• Keep a log of terminations sent to the carrier, with dates and confirmations.
• Check after renewal. Compare the first invoice of each plan year with the renewal rate sheet.

If you'd rather not do this by hand, health insurance billing is one of four areas covered by Tarvora's free, contingency-only Back Office Audit, which matches carrier invoices to payroll and handles retro credit requests you approve. The same payroll records also drive your unemployment tax, so read how unemployment claims raise your SUTA rate next. And if you're already reviewing payables, our guide to finding duplicate vendor payments uses the same 12 months of data.

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