Federal healthcare continuation coverage requirements (generally referred to as "COBRA") generally do not apply to group health plans sponsored by employers with fewer than 20 employees. However, The American Recovery and Reinvestment Act of 2009 ("ARRA"), does not limit its premium subsidy provisions to federally mandated COBRA coverage. The ARRA subsidy also applies to State programs that provide comparable continuation coverage (so-called "Mini-COBRA" laws). In response to ARRA, some states have lengthened the period of coverage, some states have added a second chance to enroll, and other states have proposed legislation to provide for continuation coverage for the first time.
What is an Assistance Eligible Individual? The premium subsidy only applies to Assistance Eligible Individuals ("AEIs"). An AEI is a qualified beneficiary who, at any time during the period that begins with September 1, 2008 and ends December 31, 2009, meets all of these conditions:
The qualified beneficiary is eligible for COBRA Continuation Coverage (or Comparable Continuation Coverage under a State Program);
The qualified beneficiary elects continuation coverage; and
The qualifying event with respect to continuation coverage is the involuntary termination of the qualified beneficiary's employment during that period.
What is an Involuntary Termination?
The IRS released Notice 2009-27 which provides that an involuntary termination "means a severance from employment due to the independent exercise of the unilateral authority of the employer to terminate the employment, other than due to the employee's implicit or explicit request, where the employee was willing and able to continue performing services."
The Questions & Answers (Q&As) in the Notice address a number of circumstances where an involuntary termination will or may be deemed to occur. See our April 10, 2009 Client Alert for a discussion of those circumstances.
What Notices Must Be Provided and Who Must Provide the Notices?
The United States Department of Labor ("DOL") was required to issue model notices to comply with ARRA. Although the DOL does not have jurisdiction over state mini-COBRA laws, it drafted a General Notice labeled an "Alternative Notice" for use by health insurance issuers that provide group health insurance coverage comparable to COBRA.
In some cases, the Alternative Notice will need to be modified to conform with state requirements. For example, the Ohio Department of Insurance has modified the DOL model notice which can be found here.
Does a Second Election Opportunity Apply to Small Employers?
The special second 60 day election period opportunity in ARRA for those AEIs who terminated coverage between September 1, 2008 and February 16, 2009 does not apply to coverage sponsored by small employers with less than 20 employees. However, some states have amended their mini-COBRA laws to provide eligible individuals with a second chance to enroll.
Who Is Entitled to the Reimbursement?
ARRA requires the federal government to reimburse a plan sponsor or other entity who is required to provide the premium subsidy to AEIs.
For small employers not subject to federal COBRA continuation coverage requirements, it is the insurer that will provide the subsidy and the insurer that will be entitled to reimbursement on the insurer's quarterly employment tax return (IRS Form 941).
What Are Some Other Notable Issues for Small Employers?
Termination Reasons
While it is the insurer that will provide the required subsidy notice, provide the subsidy, and claim the reimbursement from the federal government, small employers may need to provide the insurer with information to determine whether the individual is an AEI eligible for the subsidy. For example, an employer may need to provide the insurer with the date of the employee's termination and whether the termination is or was involuntary.
Domestic Partners
Many fully insured plans cover domestic partners of covered employees. The IRS has stated that while plans may allow "ineligible individuals" such as domestic partners or grandchildren to be covered under a plan, these "ineligible individuals" do not qualify as AEIs entitled to the subsidy. Thus, the insurer must separately determine the cost associated with the individuals that qualify as AEIs and the cost associated with individuals that do not qualify as AEIs. See our April 10, 2009 Client Alert for more information and an example of this determination.
Appeal Process
ARRA provides an appeal mechanism for those employees whose request for the subsidy is denied. The United States Department of Health and Human Services ("HHS") is the government agency that will handle appeals for plans subject to state continuation coverage laws. More information regarding reviews can be obtained at: www.cms.hhs.gov/COBRAContinuationofCov or
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Additionally, some State Insurance Departments have designated telephone lines and have updated websites regarding the premium subsidy and state group continuation coverage rules.
How has the Mini-COBRA law changed in Kentucky, Ohio, Pennsylvania and West Virginia?
Kentucky
Kentucky's continuation coverage law provides for 18 months of continuation coverage and applies to employers with fewer than 20 employees with fully insured plans.
Certain conditions must be met for employees and dependents to continue coverage including:
The employer must inform the insurance company when health insurance coverage ends, and the insurer must notify participants of their right to elect continuation coverage.
On March 31, 2009, in response to ARRA, Kentucky adopted an emergency regulation to provide for the ARRA premium subsidy for eligible employees and to provide eligible individuals with a second chance to enroll in state continuation coverage. Thus, insurers were required to notify eligible employees who were terminated between September 1, 2008 and February 16, 2009 of their second election period by April 18, 2009. Eligible employees have 60 days from the receipt of the notice to elect continued coverage under Kentucky law.
More information is available here.
Ohio
As of April 1, 2009, Ohio's continuation coverage law was amended to extend coverage from 6 months to 12 months for employers with fewer than 20 employees. Thus, insurance policies issued, delivered or renewed after April 1, 2009, must include the following changes to state continuation law:
Coverage is extended from 6 months to 12 months;
Entitlement to Unemployment Compensation is no longer required;
Employees must be involuntarily terminated, other than for gross misconduct; and
Continuation coverage must include prescription drug coverage if it is included in the group coverage
With the extension of coverage in Ohio, AEIs may be eligible for up to the entire 9 months of the federal subsidy. Under federal law, the subsidy ends when a person no longer is eligible for state continuation coverage or when the individual first becomes eligible for other group insurance, or Medicare (whichever occurs first).
In addition to other requirements for continuation coverage, an employee in Ohio must have been continuously insured under a group policy during the 3 month period preceding the termination of employment.
Ohio's continuation coverage law was not revised to include a second election period. Thus, only employees who have already elected continuation coverage or who have an election available who become involuntarily terminated through December 31, 2009 are eligible for the subsidy.
Small employers in Ohio must notify the employee of the right to continuation coverage at the time the employee is notified of the termination of employment. The insurer is required to send a Continuation Coverage Notice to former employees and their dependents who were terminated after September 1, 2008 and who are currently receiving state continuation coverage.
More information regarding Ohio's mini-COBRA law and recent changes is available here.
Pennsylvania
Pennsylvania does not currently have a mini-COBRA law. However, legislation passed the Senate on April 1, 2009 which would establish continuation coverage for employers with between 2 and 19 employees. The bill (as proposed) would extend coverage for up to 9 months for employees and their covered dependents experiencing a qualifying event provided that the employee and covered dependent were continuously insured under a group policy for three months prior to termination of coverage.
The proposed bill would also provide for the subsidy under ARRA for those employees who were involuntarily terminated after the expected enactment law and before January 1, 2010.
West Virginia
West Virginia's continuation coverage law provides 18 months of continuation coverage for individuals that are involuntarily laid off from work. On April 10, 2009, in response to ARRA, West Virginia amended its law so that the ARRA premium reduction is available to employees covered by West Virginia's mini-COBRA law. West Virginia also amended its law mandating an extended election period to enroll in state continuation coverage for eligible employees.
More information is available here.
Conclusion:
If you need assistance in complying with state law continuation coverage requirements or need assistance with state law applicability to the premium subsidy under ARRA, contact any member of the Dinsmore & Shohl, LLP Compensation and Benefits Practice Group.