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COBRA in California:
State Requires Longer Period of Continuation Coverage
(April 9, 2004)
Federal COBRA law requires that
employees who lose their health care coverage as a result of a qualifying
event—as well as their covered dependents—be offered the opportunity to
continue the coverage at their own expense. Depending on the event that
caused the coverage loss and on whether the individual is disabled,
continuation coverage can last for up to 18, 29 or 36 months. Federal COBRA
law applies to employers with 20 or more employees.
California has always had its own
continuation coverage requirements for small employers (2-19 employees).
These requirements—known as Cal-COBRA—are similar to those faced by larger
employers under the federal COBRA law, and apply to “health care service
plans,” defined under California law to include insured plans, and HMOs.
Recently, Cal-COBRA coverage
requirements were extended, enabling some federal and Cal-COBRA continuees
to be eligible for a longer period of continuation coverage. Assembly Bill
(AB) 1401—enacted in September 2002 and applicable to federal or Cal-COBRA
continuees who began their continuation coverage on or after Jan. 1,
2003—provides for up to 36 months of continued coverage. Thus, an individual
who began 18 months of COBRA or Cal-COBRA on Jan. 1, 2003, now will be
entitled to continue that coverage for up to a total of 36 months, until
December 31, 2006.
For federal COBRA beneficiaries, the
entitlement to continue beyond 18 months will apply only to their core
plans—medical and hospital benefit plans. Individuals whose continuation
coverage had been under Cal-COBRA from the start (small employer plans) will
be able to continue coverage under both core and non-core (dental, vision)
plans for the additional months.
Usually, federal COBRA continuees
pay 102% of the cost of coverage as their COBRA premium. Because the
additional months of coverage available under AB 1401 fall under Cal-COBRA
and not under the federal COBRA law, the Cal-COBRA premium rate applies: up
to 110% of the applicable group rate charged for similarly situated
non-COBRA beneficiaries. (Premiums can be higher for disability extensions.)
Also, separate from the federal COBRA law, Cal-COBRA requires a notice to
qualified beneficiaries that reflect the extension of the coverage period to
36 months, and a notice of pending termination when coverage is due to
expire.
Because individuals who will benefit
from the Cal-COBRA extension currently are still in their initial
continuation coverage period, the practical effects of this law will begin
to be felt in July 2004 (when the coverage period of 18-month continuees who
commenced continuation coverage on Jan. 1, 2003, will expire).
It remains to be seen whether the
new Cal-COBRA law will be challenged and, if so, whether it will stand. A
Maryland law similar to Cal-COBRA was struck down in a court challenge as
being preempted by ERISA (Employee Retirement Income Security Act of 1974),
the federal law that governs employee benefit plans. However, employers
should carefully consider the financial consequences of noncompliance—which
can be high—before failing to follow Cal-COBRA’s coverage extension and
notice requirements. Prudence dictates compliance: Cal-COBRA is law in the
state, until a court says otherwise.
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