Pennsylvania's New Mini-Cobra Law For Employers With Under 20 Employees: A Question And Answer Guide
by Thomas D. Rees, Esquire
with Introduction by Joo Y. Park, Esquire
Introduction
It is not unusual for a family to be covered under a single health plan that is provided by one of the spousal employers. However, when a couple goes through a divorce, the spouse who is not directly covered by his/her employer’s plan may lose health care benefits upon separation. Beginning in 1986, Federal law protected spouses who lost coverage through divorce by requiring continued health insurance coverage under the Comprehensive Omnibus Budget Reconciliation Act (“COBRA”). However, COBRA applied only to employers of 20 or more employees, leaving employees and many divorcing spouses unprotected. Recently, Pennsylvania has enacted a new law called “Mini-COBRA”, which applies to employers of less than 20 employees. Under this Act, those individuals who may have lost health insurance due to certain circumstances, such as divorce, may qualify for continuation of health insurance coverage for nine months from the event that prompted the loss of coverage. Below is a brief question and answer guide on Mini-COBRA, provided by Thomas D. Rees, Esquire of High Swartz LLP, who specializes in employment law.
Question and Answer Guide
Since 1986, the federal Comprehensive Omnibus Budget Reconciliation Act (“COBRA”) has required employers with 20 or more employees to provide continued health insurance coverage to most former employees and their dependents.
Until now, employers in Pennsylvania with under 20 employees have not had to comply with COBRA.
On Friday, July 10, 2009, that exemption ended in Pennsylvania. July 10 was the effective date for Pennsylvania’s “mini-COBRA” law requiring insurers to provide nine months of continuation health coverage to most departing employees. At least 40 states were ahead of Pennsylvania in adopting Mini-COBRA requirements.
This brief question and answer guide covers Pennsylvania’s new Mini-COBRA law.
1. Who must comply with the mini-COBRA law?
Under mini-COBRA, insurers of employers with 2 to 19 employees must provide continued health insurance coverage. Self-insured employers need not comply with the mini-COBRA law. The insurer, not the employer, has the main obligation to comply with mini-COBRA. This is a major difference from Federal COBRA. Within 45 days of passage of the law (i.e. by August 24, 2009), the group insurer must notify policyholders (employers) of the new statute. (Again, compliance with the law is required on July 10.)
2. Who is eligible to obtain coverage under the mini-COBRA law?
Employees and their dependents may obtain mini-COBRA coverage. To receive mini-COBRA coverage, the employee must be covered under the group policy for three months prior to termination. (Note: Federal COBRA has no such requirement.)
3. What events enable individuals to become eligible for coverage under the mini-COBRA law?
Mini-COBRA eligibility starts with the loss of group health coverage through a “qualifying event”, just like federal COBRA. The principal “qualifying event” is the ending of employment (either involuntary or voluntary) for reasons other than gross misconduct. Other “qualifying events” include reduction of work hours below the benefits threshold, divorce or legal separation, an employee’s Medicare eligibility, or the employer’s bankruptcy.
4. How and when does mini-COBRA coverage begin after a qualifying event?
Coverage is to be continuous, but the total time between the qualifying event and the confirmation of coverage can take up to 74 days. The employer has 30 days from a qualifying event to notify the employee, the insurer, and the Plan Administrator of the event. Then the employee or dependent has another 30 days in which to elect continuation coverage. Finally, the plan administrator has another 14 days to notify the insurer of the covered employee’s or dependent’s decision. If continuation coverage is chosen within the maximum time limits, there can be no break in coverage.
5. How long must mini-COBRA coverage be provided?
Coverage must be provided for nine months, or until the employee becomes eligible for coverage under another plan. (Note: Federal COBRA requires 18-36 months of coverage.) The employee must be allowed to convert to an individual policy at the end of mini-COBRA coverage.
6. How much must the employee pay for coverage?
The employee must pay 105% of the group rate charge on a monthly basis.
7. Is premium assistance available?
Yes. There is a subsidy of 65% of the premium for up to nine months for employees who are terminated involuntarily for reasons other than gross misconduct (not those who leave voluntarily). This subsidy is to be provided by the insurer who in turn will receive a federal tax credit. This subsidy ends on January 1, 2010, but may be extended if the federal COBRA subsidy is extended under the American Recovery and Reinvestment Act.
8. Are there grounds for termination of coverage (aside from becoming eligible for another plan)?
Yes. Non-payment of premiums or termination of a group policy may each lead to termination of coverage.
9. Will the State publish more specific regulations on mini-COBRA?
Yes. The Pennsylvania Insurance Department will publish regulations to implement the mini-COBRA law. However, employers were to comply with the law as of July 10, 2009.
10. What are the positive aspects of the new law for employers?
On the surface, the new law may help small employers to compete for talent because smaller employers will have to provide the same benefit that larger employers must provide. The direct costs of compliance will fall more on the employee (who must pay the premium) and the insurer (who will provide the subsidy but who will obtain a tax credit).
11. What are the negative aspects of the new law for employers?
The law imposes significant educational and paperwork obligations on small employers. The law requires a new level of co-ordination with insurers, payroll service, and employees in administering continuation coverage. This will lead to increased overhead costs. The paperwork burdens on insurers would logically lead to increased insurance premiums. There is a built-in uncertainty in the law because of the potential time lag between the end of employment and the lat day on which coverage can take effect, but this can be shortened by the employer’s immediate notice to the employee and the employee’s immediate election of coverage.
The law imposes requirements on the smallest employers, which have the least ability to absorb these costs and who are generally exempt from most employer mandates. (For example, the Pennsylvania Human Relations Act has a coverage threshold of four employees.) The requirements increase for small employers that have multi-state operations and need to learn about different state mini-COBRA laws. The current economic situation may have led to a general impression that the mini-COBRA law is a good idea, but the costs of this new mandate may not be known for some time in the future.
This brief summary is general in nature and does not constitute specific legal advice. However, if you have any specific legal questions, please feel free to contact counsel.
Thomas D. Rees, Esquire is a Senior Partner at the Norristown firm of High Swartz LLP. Mr. Rees concentrates his practice in the area of employment law and heads the Firm’s employment practice.
