COBRA and state continuation are laws that enable employees to maintain health care coverage under their company’s group plan even after they have been terminated or had a change of employment status from full-time to part-time. Under these laws, an employee’s health coverage would remain the same; however, there may be a difference in how much they pay in premiums. Extra administrative fees may also apply.
Distinguishing between state continuation vs cobra is based on the number of full-time employees or full-time equivalent (FTE) workers within a company. State COBRA applies to businesses with less than 20 full-time employees and FTEs for 50 percent of the previous calendar year. Federal COBRA applies to companies with at least 20 full-time employees or FTEs for 50 percent of the previous calendar year.
Learn more about COBRA insurance, how it works, and the differences between state continuation and federal COBRA.
What Is COBRA Insurance?
The Consolidated Omnibus Budget Reconciliation Act (COBRA) provides employees and qualifying dependents who lose their health care benefits the option to continue receiving group health care benefits provided by their employer-sponsored health plan for a specified period of time. COBRA insurance applies under qualifying situations, such as a reduction in hours worked, voluntary or involuntary job loss, a change between jobs, divorce, death, or other life events.
Large employers in the U.S. with 50 or more full-time employees are required to provide health insurance to all qualifying workers by paying a portion of insurance premiums. When an employee becomes ineligible to continue receiving their employer’s health insurance benefits, the employer may stop paying its share of the premiums. When this happens, COBRA would allow the employee and any dependents to retain the same insurance coverage temporarily if they are willing to pay for coverage on their own.
Under COBRA, qualifying candidates can receive coverage that is identical to that which the employer currently offers to employees. Changes in plan benefits for active employees would also apply to all qualified beneficiaries.
Qualifying COBRA beneficiaries are permitted to make the same decisions as non-COBRA beneficiaries. There is a 60-day period in which an employee can choose whether or not to use this continuation coverage. If coverage is waived, an employee can later change their mind as long as it is within the 60-day period.
How Does COBRA Work?
COBRA is a federal law created in 1985 that applies to employers outside of the federal government with more than 20 employees. The goal of this law is to extend an employee’s health plan coverage when an employer’s plan ends. The employer, insurance carrier, or both is responsible for providing information on COBRA coverage and must include COBRA rights information in the plan documents during enrollment.
If a person chooses to continue their health care coverage under COBRA, it will begin the day after their employer’s plan coverage ends. The person will receive the same benefits as they did under their employer’s group plan and can continue to see the same doctors and other healthcare providers as they did previously. COBRA insurance typically lasts between 18 and 36 months, depending on the qualifying event that made the person eligible for COBRA insurance.
There is a risk that COBRA insurance could be terminated early if the premiums and other costs of coverage are not paid on time. COBRA insurance may also be terminated if the person accepts a job that offers health insurance coverage before COBRA coverage runs out.
It is important to remember that COBRA coverage can be significantly more costly than what a person paid under their employer’s plan as COBRA requires the insured to pay 100 percent of the costs of their group health plan.
Determining State Continuation Vs COBRA
While federal COBRA and state continuation laws do have some similarities, there are also some distinct differences. It is also important to remember that state continuation laws are constantly changing and each state has its own set of laws.
Here is a look at both federal COBRA and state continuation and the differences between them:
Federal COBRA
The U.S. Department of Health and Human Services has jurisdiction concerning the COBRA continuation coverage of the Public Health Service (PHS) Act. Employers that are subject to COBRA or have a group health plan are required to provide COBRA benefits to all qualified beneficiaries. Beneficiaries refer to anyone that is covered under the group health plan on the day before a qualifying event that causes loss of coverage.
Examples of qualified beneficiaries include employees, including part-time workers if they are participants in the group health plan before the qualifying event, their spouses, dependents, retirees (except for individuals eligible for Medicare), and partners in a partnership. COBRA coverage does not need to be provided to employees who are not yet eligible for the group health plan, employees who declined participation in the group health plan, or individuals who are enrolled in Medicare.
Under federal COBRA laws, certain types of plans need to be offered to employees if they are already being offered to the workforce. These benefits include health care plans, dental plans, vision plans, medical spending accounts, hearing plans, alcohol and substance abuse plans, prescription drug plans, and mental health plans. Employers are not required to extend some types of plans under COBRA, including disability insurance, life insurance, vacation plans, and retirement plans.
Communication is important in regard to COBRA. Employers must comply with strict communication requirements. Businesses must notify covered employees and covered spouses as to their rights under COBRA when they first join the plan. All covered persons must also be notified of their election rights to continue coverage if they should encounter a qualifying event.
The plan administrator must be notified within 30 days when a loss occurs, except in the case of a divorce or a change of status by a dependent. In these instances, an employer has 60 days to notify the administrator. The plan administrator then has up to 14 days to notify the person entitled to COBRA coverage.
State Continuation
State continuation coverage refers to state laws that enable employees to extend their employer-sponsored group health insurance even if they are not eligible for an extension through COBRA. While COBRA law applies throughout the U.S., it is only applicable to employers with 20 or more employees. Smaller businesses may not be covered under this federal requirement.
To ensure that employees can maintain their health care coverage, many states have established laws that allow employees and their family to maintain their group coverage even if the business is not subject to COBRA requirements. Often referred to as “mini-COBRA,” state continuation offers many COBRA protections that are essential post-COVID-19 due to substantial job losses.
With state continuation laws, employees can choose to buy coverage through their employer’s group health care insurance plan even if their eligibility has been terminated. The termination of an employee’s health care plan can occur for a wide range of reasons, such as a reduction in work hours to part-time or voluntary or involuntary termination of employment.
Several events can occur that may cause dependents to lose their health care coverage under state continuation laws. Dependents often become ineligible for coverage under a group health care plan when the covered employee retires or dies. A dependent may also be ineligible for coverage upon reaching age 26. A divorce can also result in a loss of health coverage.
The rules for state continuation vary significantly from one state to the next. States like Idaho, Alabama, Michigan, Alaska, Montana, and Indiana do not currently have any state continuation requirements. In California, the state continuation rule is referred to as “Cal-COBRA” and allows enrollees to continue their coverage for between 18 and 36 months, depending on the qualifying event that would have otherwise ended their healthcare coverage. Coverage can also be extended for qualifying family members.
Who Is Qualified For COBRA?
Employees and dependents are subject to different sets of criteria when determining who qualifies for COBRA. When the proper criteria are met, an eligible employee can only receive one COBRA coverage following a qualifying event. The type of qualifying event determines who is a qualified beneficiary and what conditions each type of beneficiary must meet to maintain coverage.
Employees may qualify for COBRA coverage in the event of:
- Voluntary or involuntary job loss, such as the COVID-19 pandemic
- A decrease in the number of hours worked resulting in a loss of group health care coverage
Spouses can qualify for COBRA coverage on their own if they meet certain conditions, including:
- The divorce or legal separation from the covered employee
- The covered employee becomes entitled to Medicare benefits
- The death of the covered employee
Qualifying events for dependents of covered employees are generally the same as for a spouse but with one addition:
- The loss of dependent child status
Contact New City For More Info On State Continuation Vs COBRA
Many employees worry about how they will cover their medical bills in the case of an unexpected event, such as a loss of work hours, termination, divorce, or another event. State continuation vs COBRA laws makes it possible for employees and their families to keep their health coverage for a specified period of time that they can use to find another job or seek health coverage elsewhere.
COBRA sets rules for when and how plan sponsors must offer and provide healthcare continuation coverage and what circumstances justify terminating coverage. These laws are subject to change; therefore, employers must continue to familiarize themselves with these laws over time. For more information about the difference between state continuation and federal COBRA, speak with the employee benefits consultants at New City Insurance.