Health Insurance: New Law Extends COBRA and Cal-COBRA Coverage; 3 Practical Compliance Steps

Under the federal COBRA law, employees and their dependents who lose health insurance coverage because they’re terminated or for other reasons and who work for employers with 20 or more employees are generally entitled to a temporary extension of healthcare benefits. This typically runs up to 18 months but can be 29 months for certain disabled individuals. California’s similar law, known as Cal-COBRA, applies to employers with 2-19 employees and mirrors many federal COBRA requirements

Last year, Gov. Davis signed into law A.B. 1401, extending continuation coverage to 36 months for individuals whose Cal-COBRA or COBRA coverage begins on or after Jan. 1, 2003, and runs out. We’ve put together a guide to what you should know about the new law.

COBRA and Cal-COBRA Basics

Under federal COBRA and Cal-COBRA, the period of continued coverage depends on the type of event that triggered an individual to lose employer-provided health benefits. If the “qualifying event” is lost employment or reduced hours, the continuation period is 18 months; if it’s a death or divorce, coverage is for 36 months.

Under COBRA, health plans may charge up to 102% of the group monthly premium cost for the continuation coverage, or 150% if the individual is eligible for an 11-month disability extension. Cal-COBRA permits plans to charge up to 110%.

New Requirements

Here’s a rundown on the key provisions of the new state law:

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• Extended continuation period. All HMOs and insured health plans must offer individuals who have exhausted their initial 18 months (or 29 months for a disability extension) of COBRA or Cal-COBRA continuation coverage the ability to extend it to up to 36 months. To obtain the extended coverage, the individual must notify the carrier in writing no later than 30 days before the end of the initial 18-month (or 29-month) COBRA or Cal-COBRA period.

   

• Effective date. The extended coverage only applies to individuals who begin COBRA or Cal-COBRA coverage on or after Jan. 1, 2003. This means the earliest the new extended coverage would kick in would be July 1, 2004.

   

• Premium charges. The charge for this additional coverage cannot exceed 110% of the group’s premium. However, under COBRA and Cal-COBRA, an individual who is eligible for a disability extension to 29 months can be charged up to 150% of the group premium during that extension period (for months 19 through 29). Note that this will likely mean that to avoid paying more for coverage, individuals will forego applying for a disability extension to take advantage of the 110% rate from months 19 through 36.

   

• Ineligibility guidelines. The new extension isn’t available to anyone already entitled to 36 months of COBRA or Cal-COBRA coverage (because the qualifying event was death or divorce). Others who cannot receive this extra coverage include those who lost continuation coverage for a reason such as nonpayment of premiums or who didn’t qualify for it because they were fired for gross misconduct.

   

• Plans not covered. Self-insured plans and “non-core” coverage such as dental and vision plans are not subject to the new extension.

Compliance Steps

The new law specifically applies to HMOs and insured health plans, and it places no new obligations on employers. Still, you can take some steps to get ready:

1. Change federal COBRA notices. Although the insurer or HMO is obligated to notify employees about the new extension period, it is prudent for employers to revise their standard COBRA notice to reflect that an extension of coverage to 36 months may be available under Cal-COBRA. You can include a statement that individuals should contact the HMO or insurer for more information.

    

2. Revise Cal-COBRA notices. If you’re a small employer covered only by Cal-COBRA, revise all Cal-COBRA notices to include the new, longer coverage period.

    

3. Review insurance policies. It’s a good idea to verify that your insurers and HMOs have revised their policy and contract language, as well as language in certificates of coverage provided to new hires, to reflect the extended coverage period.