Benefits and Compensation

The Intersection of COBRA and State ‘Mini-COBRA’ Laws

Nearly all states have enacted some type of healthcare continuation coverage law (sometimes referred to colloquially as a “mini-COBRA” statute) that is similar to the federal Consolidated Omnibus Budget Reconciliation Act (COBRA) or that supplements the federal requirements. Many of these laws predate federal COBRA but remain in effect after COBRA became law. This column will describe some of the key features of state mini-COBRA laws and how they impact employers and different types of group health plans governed by the Employee Retirement Income Security Act (ERISA).

Types of State Continuation Coverage Laws

There are a few common types of state “mini-COBRA” laws. Below are a few examples. For a full listing of all state continuation coverage laws, please see Tab 2000 of Mandated Health Benefits—The COBRA Guide.

  1. Laws applying to group health plans of small employers

Federal COBRA only applies to group health plans maintained by employers with 20 or more employees. Some states, such as California, have passed laws requiring COBRA-like continuation coverage rules applicable to plans of employers with fewer than 20 employees.

  • Extended continuation coverage beyond the COBRA period

Several states have laws requiring continuation of insured health coverage beyond the period required by federal COBRA. For example, New York has a statute requiring 36 months of continued coverage for employees and their dependents who lost coverage under an insured group health plan due to a termination of employment (double the 18-month period required by federal COBRA). Similarly, California’s law mandates 36 months of continuation coverage through an insured plan for all qualifying events. Minnesota has a more complicated law providing that surviving spouses and dependent children who have lost coverage due to a covered employee’s death must be allowed to continue coverage under an insured plan until the earlier of (1) the date the surviving spouse is covered under another group health plan or (2) the date the surviving spouse’s or dependent’s coverage would have ended if the employee had not died.

  • Alternative notice requirements

Some states require that continuation coverage notices be provided earlier than the time frames required under federal COBRA. In Iowa, for example, employers are required to notify employees of their continuation coverage rights within 10 days of terminating employment instead of the longer period allowed under COBRA.

Types of Group Health Plans Subject to State Continuation Laws

Self-insured group health plans governed by ERISA are not subject to state continuation coverage laws like the ones described above. It is important to bear in mind that COBRA itself does not have a specific preemption provision. However, because the provisions of COBRA are part of ERISA, these state laws are preempted by the general (and broad) ERISA preemption rules when applied to self-insured plans.

Briefly, ERISA preempts the application of state laws that “relate to” employee benefit plans, meaning the law is connected to or refers to an employee benefit plan. However, state laws that regulate insurance or insurance companies, even laws that might somehow relate to an ERISA plan, are “saved” from preemption so that states can regulate the insurance industry. However, under one last ERISA preemption rule, an ERISA employee benefit plan cannot be “deemed” to be insurance or engaged in the business of insurance, even if the plan provides benefits through an insurance policy. This effectively means that state insurance laws can only regulate the insurance carrier or insurance coverage; they cannot directly regulate an ERISA plan or an employer that sponsors an ERISA plan.

Although state insurance laws cannot directly regulate ERISA plans or their sponsors, ERISA group health plans providing insured health benefits are still indirectly subject to state mini-COBRA laws because those state laws apply to the insurance carriers that insure the benefits and the coverage provided through the insurance policies. Technically, this puts the responsibility for compliance with state mini-COBRA laws on the insurer and not on the employer/plan sponsor. Nevertheless, in many cases, insurers will try to push back on employers to make them adhere to the state mini-COBRA laws applicable to their insured plans. Thus, it is important for employers and their advisors to understand how the state and federal laws do (and do not) apply.

How Preemption Applies (or doesn’t) to Various State Continuation of Coverage Laws

  1. Laws applying to group health plans of small employers

State continuation of coverage laws intended to apply to insured group health plans of small employers are generally not preempted by ERISA and federal COBRA. Only employers with 20 or more employees are subject to federal COBRA. State continuation of coverage laws applicable to small-employer group health plans generally target plans of employers that are under the 20-employee threshold (effectively extending COBRA-like continuation coverage to small-employer plans) and typically avoid preemption by requiring insurers of those plans (and not employers) to provide continuation coverage.

  • Extended continuation coverage beyond the federal COBRA period

Federal COBRA generally requires that group health plan coverage be continued for up to a maximum of 18–36 months after a qualifying event. State laws that extend that continuation period under certain circumstances, such as California’s or New York’s, are designed to avoid preemption by ERISA because they apply to insured group health plans and insurance carriers, not to employers. Consequently, such laws are not preempted by ERISA, and group health plans could be subject to both federal COBRA and state “mini-COBRA” (to the extent the state insurance continuation rule is more generous than federal COBRA). Stated more broadly, if a large employer (more than 20 employees) maintains an insured group health plan, the general rule is that it must comply with both federal COBRA and state “mini-COBRA” and apply whichever rule is the more “favorable” rule. Admittedly, it may not be easy to figure out which of the rules is the more “favorable” rule. In unclear cases, therefore, employers and administrators should consult with counsel.

  • Alternative notice requirements

Often, state mini-COBRA laws are not as detailed as federal COBRA. In particular, the rules governing the timing and manner for delivery of notices of continuation coverage rights are not clear. However, one thing that is clear in some of the laws is that the state requires notices to be provided to affected participants by their employers and not the insurer that otherwise has to administer state continuation coverage. When that happens, the question arises as to whether a state can force an employer maintaining an insured plan to deliver the continuation coverage notices.

The U.S. Department of Labor (DOL) has issued guidance in the form of advisory opinions (DOL Advisory Opinion 96-03A (February 20, 1996; DOL Advisory Opinion 96-04A (February 22, 1996))) indicating that states cannot force employers to provide state law continuation coverage notices even though they can regulate the insurance provided to the employers’ group health plan. This type of state regulation relates to the employee benefit plan and, in the DOL’s view, does not regulate insurance.

The practical problem that can arise in these situations is that an insurer might argue that it does not have to provide notice (because the state law mandates that employers provide the notices). At the same time, an employer might argue that it cannot be forced to give the notice because that state law would be preempted by ERISA. The net result might be that no notices are provided! That is generally an undesirable outcome, and employers, third-party administrators (TPAs), and insurers need to work together to find a way to get some form of notice of state mini-COBRA out to affected participants.

Considerations for Employers Sponsoring Insured ERISA Group Health Plans  

Practically speaking, employers sponsoring insured group health plans may not be able to completely ignore state continuation of coverage laws. Employers need to understand the interplay between the state and federal continuation laws and how their group health plan participants (employees, spouses, and dependents) may be impacted. An employer might not be on the hook for compliance with the state law, but it should know that its employees/plan participants are entitled to continuation coverage under an applicable state law.

Issues can also arise for employers related to administration of mini-COBRA laws. Just because an insurance carrier is responsible for actually extending the continued coverage mandated by a state continuation of coverage law, that does not mean that it will readily to agree to all aspects of administering the laws. This is particularly true when it comes to the interface between the plan and its participants. Employers with insured group health plans, therefore, should work closely with their TPAs, brokers, and insurance carriers to figure out how to implement the state law requirements in a way that makes sense without an undue burden.

Paul M. Hamburger is co-chair of the Employee Benefits, Executive Compensation, and ERISA Litigation Practice Center and head of the Washington, D.C., office of law firm Proskauer Rose LLP. He is also a leader of the Practice Center’s health and welfare subgroup and a member of Proskauer’s Health Care Reform Task Force. Hamburger has more than 35 years of experience in advising employers and administrators and is the author of numerous articles and publications on COBRA and other employee benefits issues affecting pension and welfare plans. Hamburger is contributing editor of Mandated Health Benefits—The COBRA Guide.

Elizabeth D. Down is an associate in Proskauer Rose’s Labor & Employment Law Department and a member of the Employee Benefits & Executive Compensation Group. Down represents multiemployer plans, public and private companies, not-for-profit organizations, and other fiduciaries in legal and regulatory matters affecting employee benefit plans.