If Not COBRA, What?

If Not COBRA, What?

By Terry Altepeter, CPA

The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) introduced health insurance continuation into the employment landscape. Under COBRA, employees of companies with 20 or more employees are allowed the option of maintaining their coverage under their employer’s group health insurance plan for up to 18 months after termination of employment. They do so at their own cost, of course, and there are some additional features of COBRA that not too many employees are aware of. 

First, when terminated employees elect to maintain their health coverage under COBRA, the employer can require that they pay an additional “administrative fee” each month, of up 2% of the monthly premium. Second, many employees think that COBRA eligibility is automatic. It is in fact only available to those employees who terminate employment for reasons other than for “gross misconduct” (which is not actually defined in the law), or who change to a part-time employment status, which would not normally include health care coverage. Finally, an employee’s spouse and dependents (as they are defined by the insurance plan, not by tax law) may also elect COBRA coverage upon a divorce between the employee and spouse, or upon the death of the employee. 

Employers covered by COBRA requirements because they have 20 or more employees do not lose responsibility for complying with the law because they may drop below 20 employees. Unless the drop below 20 employees becomes “permanent” (also not defined in the law), an employer will still be required to comply with COBRA requirements, even if at a given point in time it has fewer than 20 employees. 

But what about employers with fewer than 20 employees? Because COBRA does not apply to them, what recourse or options does an employee of a “small” employer have if employment is terminated? 

According to Insure.com, 37 states currently have some sort of “mini-COBRA” insurance continuation requirements written into state law. Of these 37 states, all cover employers with at least two but fewer than 20 employees. Ohio is the only exception and its law applies to employers with at least 10 employees. The purpose of this article is to present the requirements for Missouri, Kansas, and Illinois, and to illustrate the differences, besides the number of employees, between the various state laws and COBRA. All three states cover employers with at least two employees.

COBRA eligibility occurs on the first day that an employee is covered under the employer-provided health insurance plan. Missouri, Illinois, and Kansas all require that an employee be covered by the employer’s group health plan for three continuous months, with the last day of that period being the date of termination of employment. Continuation of coverage under COBRA is available for up to 18 months for a terminated employee, and up to 36 months for a spouse and/or dependent children upon a divorce or the death of the employee. Dependent children can also have up to 36 months of COBRA coverage upon losing their status as dependents.

In Missouri and Illinois, terminated employees can continue coverage for up to nine months following the date of termination. In Kansas, the maximum length of time for continuation coverage is six months. In Missouri and Kansas, these time frames also include continuation coverage for spouses and dependent children. Illinois, however, also has a separate continuation requirement for spouses and dependent children, in the event of the death or retirement of the employee, or in the event of a divorce. Under Illinois’ “spousal continuation”, the spouse and/or dependent children are eligible for coverage continuation as of the first day that the employee is covered under the employer’s plan. Continuation for the spouse can be for up to two years if the spouse is under age 55; coverage can continue until the spouse is eligible for Medicare if, at the time of the qualifying event (death, divorce, etc.), the spouse is age 55 or older. Dependent children would be covered for the same length of time as the spouse, unless they lose their dependent status for some other reason. Illinois spousal continuation also does not apply to HMO plans.

COBRA requires an employer to provide a “notice of eligibility” upon commencement of employment that the employee has COBRA continuation available upon termination. This notice must state that the employee is responsible for the cost of continuation of coverage. The notice must also state whether there is an “administrative fee” and how much that fee is, as a percentage of the monthly premium. Missouri and Illinois do not require that such a notice be given to employees. Kansas requires such a notice to employees once they actually enroll in the health insurance plan.

COBRA requires that the employer provide a notice to the administrator of the health plan (usually the insurance company) that a qualifying event has occurred within 30 days of the occurrence. In Missouri and Illinois, no such notice is required, except in the case of Illinois’s spousal continuation. In that case, the employer must notify the administrator of the qualifying event within 15 days of having received notification from the spouse that such an event has occurred. In Kansas, a notice similar to that required by COBRA is also required. But for the employer to be able to notify the administrator under these circumstances, the employer must be made aware that a qualifying event has, or is about to, happen.

COBRA requires that an employee notify the employer within 60 days of the occurrence of the qualifying event, which I find interesting, considering that the employer only has 30 days to notify the administrator that a qualifying event has occurred. Missouri and Illinois do not require any notification by the employee to the employer that a qualifying event has occurred. Illinois’ spousal continuation, though, requires that the spouse notify the employer within 30 days of occurrence. Kansas requires the employee to notify the employer “upon occurrence” of the qualifying event.

Once all of these notifications have taken place, and once everyone knows that some sort of qualifying event has occurred, the interested party (i.e., employee, spouse, or dependent children, depending on the actual qualifying event) must be given official notice that continuation of coverage is available, the date that such coverage would be effective if continued, the monthly cost of such coverage, and a due date each month for payment of the premium. At least that’s the COBRA requirement for content, which is why I refer to it as “the COBRA Notice”.   COBRA also requires that this notice be sent to the interested party within 14 days after it receives notice from the employee/spouse/dependent child of the occurrence of the qualifying event.

In Missouri, this notice must be phrased in a similar fashion and must be sent to the interested party within 31 days of the date that coverage would otherwise terminate. In Kansas, the insurance company is actually required to send this notice to the employee or other interested party. In Illinois, if the qualifying event is termination, the employer is required to give this notice to the employee upon termination. For spousal continuation, the employer notifies the insurance company that the appropriate qualifying event has occurred, and the insurance company is then required to issue the “COBRA Notice” to the spouse within 30 days of the date it receives notice from the employer.

Now that the appropriate interested party knows what he/she can or must do, an election must be made: whether or not to accept the continuation of coverage. According to both COBRA and the various state statutes, failure to respond within the specified time frame that continuation of coverage is wanted is deemed to be an election to forego continuation. For coverage to continue, the interested party must affirmatively notify the employer that continuation is desired. Under COBRA, this must be done within 60 days after the “COBRA Notice” is received from the employer. In Missouri, the election must be made within 31 days of the date that coverage would otherwise terminate. Missouri law also requires that the first month’s premium payment accompany the election notice. Without this premium payment, the election is not considered valid and, unless the premium is paid within whatever remaining time is left in the 31-day window, no continuation of coverage will be available.

Kansas requires that the election be made within 31 days of the occurrence of the qualifying event, although the state Department of Insurance has issued regulations expanding this time window, based on when the various notifications are sent and received. In practical terms, an employee/spouse has 31 days from the date that the insurance company issues the “COBRA Notice” to make the election whether to continue coverage. Illinois requires an election within 10 days of the date of issuance of the “COBRA Notice”, if the qualifying event is termination of employment. In the case of spousal continuation, the election must be made within 30 days of the date of the “COBRA Notice” from the insurance company.

Finally, unlike COBRA, the various state statutes do require that the insurance companies allow terminated employees, or their spouses and/or dependent children, to convert the continued group coverage to a personal plan of coverage at the end of the appropriate continuation period. The insurance company is allowed to charge whatever its normal premiums would be for private coverage, and the employee/spouse/dependent child must notify the insurance company before the end of the continuation period that conversion to private coverage is desired. Kansas has also established a “high risk pool”, the Kansas Health Insurance Association, for those without health care coverage, who have previously exhausted their COBRA or state continuation benefit.

One final point should be made: the preceding discussion details the legal requirements for employers, depending on both the size of their employee group and where they are located. If they have fewer than 20 employees, they are required to follow, at a minimum, the respective state requirements for continuation. They can, if they choose, elect to follow COBRA’s requirements instead. In some cases, there may be little difference. In some states, however, electing to follow COBRA puts some additional requirements on the employer that state laws do not. Therefore, if you have clients with fewer than 20 employees, and who express an intent to follow the COBRA requirements, be sure that you know the appropriate state law, so that you can advise your clients properly on what they can, and must, do to comply with the appropriate statutes.

Terry Altepeter, CPA, is a Financial Manager with Per-Se Technologies, Inc., the nation’s largest medical billing and practice management company. He is also the Chairman of the MSCPA Healthcare Committee. He can be reached at terry.altepeter@per-se.com.