HR Management & Compliance

Arizona’s Small Employers Need to Be Ready for New COBRA-Like Mandate

Arizona employers with fewer than 20 employees need to be ready for a new state law requiring them to offer continuation of health insurance benefits for employees and their dependents. The new law applies to health benefits plans sponsored by small employers that are issued or renewed after December 31, 2018.

COBRAUnder the federal Consolidated Omnibus Budget Reconciliation Act of 1985—known as COBRA—many workers and their families have the right to choose to continue benefits provided by their group health insurance plans for limited periods of time under certain circumstances, including voluntary or involuntary job loss, reduction in hours worked, transition between jobs, death, divorce, and other life events.

COBRA applies to group health insurance plans sponsored by an employer with at least 20 employees on more than 50% of its typical business days in the previous calendar year. The new Arizona law is intended to provide the same right to individuals working for employers with fewer than 20 employees.

In addition to applying to small employers, another difference between the Arizona law and COBRA is the higher administrative fee employers may charge over and above the full cost of the premium, including the amount both the employer and the employee paid in premiums prior to the qualifying event. Under COBRA, the permissible administrative fee is 2%, while small employers in Arizona will be able to charge an additional 5% administrative fee.

Another difference is that a person has COBRA rights as long as he or she was covered under the employer’s healthcare plan before the qualifying event that triggered the continuation right. For Arizona small employers, however, a plan enrollee doesn’t qualify for continuation benefits unless he or she has been enrolled in the plan for at least three months before a qualifying event occurs. Otherwise, the Arizona law is tailored to be consistent with COBRA in its notice requirements, election periods, continuation periods, and similar procedural details.

For more information on the new Arizona benefits continuation law, see the November issue of Arizona Employment Law Letter.

Dinita L. James is a partner in the Gonzalez Law, LLC law firm in Tempe, Arizona. She can be reached at dinita.james@gnzlaw.com or 480-565-6400.