Benefits

An amendment to California COBRA (California Continuation Benefits Replacement Act) affects health plans issued, renewed, or amended on or after January 1, 1998. The amendment requires employers with 2-19 employees to offer continued health care coverage (medical, dental, and vision) to employees and their dependents who lose coverage through qualifying events similar to Federal COBRA. Self-insured plans are not affected.

This new regulation is similar to the Federal COBRA regulations in many respects. However, one significant difference is that the Insurance Company (Insurer) has the responsibility for notifying qualified beneficiaries and collecting the premiums. Employers have the responsibility for providing notice of a qualifying event to the Insurer.

Employers with 20 or more employees are subject to Federal COBRA and the new Cal-COBRA rules do not apply. However, the prior Cal-COBRA rules concerning employees age 60+ with five years of service do still apply for all groups subject to Federal COBRA.

Definition of Small Employer
A small employer that has at least 2, but not more than 19 employees on at least 50% of its working days in the preceding calendar year. Once this definition is met, the employer becomes Cal-COBRA mandated on the following January 1.

Notification Requirement
Employees are required to notify their employer or insurer, in writing, within 60 days of the qualifying event (divorce, legal separation, or a child's loss of dependent status). Failure to do so will result in loss of eligibility for continuation. Employers are required to notify the Insurer no later than 31 days after a qualifying event (termination of employment - except for gross misconduct, reduction of hours, death of employee). The Insurer must notify qualified beneficiaries of right to elect continuation coverage within 14 days of notification from employer.

Initially, the Insurer is responsible for providing a written notice detailing the new law for all qualified beneficiaries. By January 1, 1999, the group benefit plan "Evidence of Coverage" certificates or booklets must contain the full notification of the availability of continuation coverage and the responsibility of the qualified beneficiary regarding notification and payment of premiums. The employer must distribute the Evidence of Coverage to all eligible employees.

Qualifying Events

• The death of the covered employee or subscriber
• The termination or reduction of hours of the covered employee's or subscriber's employment except that termination for gross misconduct does not constitute a qualifying event
• Divorce or legal separation of thc covered employee from the covered employee's spouse
• Loss of dependent status by a dependent enrolled in the group benefit plan
• With respect to a dependent only, the covered employee's or subscriber's eligibility for coverage under Medicare

Duration of Continuation Coverage

• 18 months for termination or reduction of hours [An 11-month disability extension is available the same as Federal COBRA. If a qualified beneficiary is determined by Social Security to be disabled within 60 days of a termination or reduction of hours, the qualified beneficiary's continuation period is extended from 18 to 29 months.]
• 36 months for death of employee, divorce/legal separation, loss of dependent status, Medicare entitlement:

Premiums
The Insurer may not charge qualified beneficiaries a premium that is more than 110% of the applicable premium for a similarly situated covered employee. The qualified beneficiary must make initial payment directly to Insurer within 45 days of the date election notice is returned to Insurer.

Termination of Continuation Coverage
Termination of continuation coverage may occur in the following cases:

• Premium non-payment.
• Termination by the employer of all its group health plans. [In case of a plan termination, the Insurer must send notice of termination and individual conversion information to the continuee no later than 180 days prior to end date of coverage. In addition, the employer must notify the qualified beneficiary at least 30 days prior. If the policy is being replaced, the qualified beneficiary may elect to continue under the replacement policy within 30 days of the notice.]
• Failure of the qualified beneficiary to notify or make elections in a timely manner.
• Qualified beneficiary is covered (not just eligible) under another group health plan, unless the new plan includes pre-existing condition limitations pertaining to the qualified beneficiary's condition.
• Medicare entitlement.

Conclusions
At first glance it appears that the cost of this legislation will be borne by insurance companies. However, higher insurance costs will eventually be passed onto employers in the form of higher insurance premiums, once again increasing the cost of doing business in California. On the positive side, this could make small companies more attractive to employees and prospective employees, since small companies now have the same health insurance protections as large companies.

After January 1, 1999, employees will be notified of Cal-COBRA via the "Evidence of Coverage" certificates. Until then, it's not clear who has the responsibility for notifying employees of Cal-COBRA when dependents lose insurance coverage (e.g. divorce, legal separation, or a child's loss of dependent status). To be on the safe side, employers should consider posting notices of Cal-COBRA rights inside the company. Contact your insurance company for more information.