Pennsylvania Adopts Mini-COBRA Requirements for Small Employers with Insured Medical, Hospital, or Surgical Benefits

Background

Federal COBRA rules only apply to employers with 20 or more employees. However, 39 states and the District of Columbia have various mini-COBRA rules in their state insurance codes that apply to small businesses (usually those with 2 to 19 employees) that provide medical benefits to their employees. These rules tend to be similar to, although often not exactly like, federal COBRA rules. Some of the state COBRA rules also apply to larger employers that purchase insured benefits (such as parts of the CAL-COBRA rules or the recent New York 36-month continuation legislation) or employers (such as churches) that are not subject to the ERISA rules that generally preempt state insurance laws.

The American Recovery and Reinvestment Act of 2009 (ARRA) introduced a 65% assistance payment for individuals who are involuntarily terminated from employment[1] and extended the 65% assistance to state mini-COBRA rules. Further, to the extent provided under state law, the ARRA second-chance election opportunity is also available for individuals subject to the state mini-COBRA rules, and, to date, approximately 17 states (including California, Illinois, and New York) have expanded their mini-COBRA rules to permit the second-chance election and another four states permit the second-chance election through regulations.

Pennsylvania Mini-COBRA Requirements

Pennsylvania has now become the fortieth state to adopt a mini-COBRA provision effective for losses of coverage that occur on or after July 10, 2009. The new Pennsylvania mini-COBRA provision requires that eligible employees of small employers (from 2 to 19 employees) be given the opportunity to purchase continuation healthcare coverage for themselves (and their eligible dependents) for a period of up to nine months. In the tradition of many other state mini-COBRA rules, the new Pennsylvania rules are similar, but not identical, to the federal COBRA rules. The Pennsylvania statute can be found in Section 635.4 of the Insurance Company Law of 1921 and is sometimes referred to as "Act 2 of 2009."

Eligible employees under the new Pennsylvania provision include employees who (1) had healthcare coverage under their small employers' group health insurance plan for a period of three months prior to their termination, (2) are not currently eligible for Medicare, and (3) are not eligible for or covered by other private group health insurance.

According to the Pennsylvania Insurance Department, the employer is required to send out the Pennsylvania Mini-COBRA notices to eligible employees within 30 days after a qualifying event. The employer is also required to notify the plan administrator when an individual experiences a qualifying event. Eligible employees (and their dependents) may then elect, within 30 days, to continue with their group health insurance.

Variations from Federal COBRA Rules

Some of the ways in which the Pennsylvania Mini-COBRA rules are different than the federal COBRA rules include the following:

Coordination with ARRA

The Pennsylvania Mini-COBRA law requires that employees who are involuntarily terminated between July 10, 2009 and December 31, 2009 must be offered a "mini-COBRA subsidy" equal to 65% of the premium (the same subsidy found in ARRA). It is important to note that unlike ARRA, where the 65% subsidy is advanced by the employer (and recouped through future payroll tax credits), the Pennsylvania Mini-COBRA law requires healthcare insurers to advance the 65% subsidy and recover it from the insurer's payroll tax deposits. Finally, since the Pennsylvania Mini-COBRA law is new, it does not contain a second-chance election provision.

Next Steps

Small employers with medical, hospital, or surgical benefits that are insured under Pennsylvania law should be certain to discuss this new law with their insurers in order to determine that the insurers will be able to handle the new Pennsylvania Mini-COBRA requirements and also to determine their obligations under the new law. Small employers should also determine whether their insurers will be able to supply appropriate Pennsylvania Mini-COBRA election forms, or whether the insurer will use the Model notice found online at http://www.ins.state.pa.us/ins/lib/ins/whats_new/employee_model_notice_fiinal070909.doc.

If you have any questions concerning the information in this LawFlash, please contact any of the following Morgan Lewis attorneys:

Chicago
David Ackerman
Andy R. Anderson
Brian D. Hector

Dallas
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Erin Turley

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Craig A. Bitman
Gary S. Rothstein

Palo Alto
S. James DiBernardo
Zaitun Poonja

Philadelphia
Robert L. Abramowitz
I. Lee Falk
Amy Pocino Kelly
Robert J. Lichtenstein
Joseph E. Ronan
Steven D. Spencer
Mims Maynard Zabriskie
David B. Zelikoff

Pittsburgh
Lisa H. Barton
John G. Ferreira
Lauren Bradbury Licastro
R. Randall Tracht

Washington, D.C.
Althea R. Day
Benjamin I. Delancy
David R. Fuller
Mary B. "Handy" Hevener
Gregory L. Needles

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[1]. For more information on the COBRA subsidy, please read our LawFlashes on the topic: "Stimulus Plan Requires Immediate COBRA Action" (available at http://www.morganlewis.com/pubs/EconoStimulus_COBRAAction_LF_17feb09.pdf), "Further Details on New COBRA Rules" (available at http://www.morganlewis.com/pubs/EconoStimulus_COBRAFurtherDetails_LF_24feb09.pdf), "DOL Releases Model COBRA Notices for Stimulus Bill 65% Assistance Payment Provisions" (available at http://www.morganlewis.com/pubs/EconoStimulus_ModelCOBRANotices_LF_19mar09.pdf), and "IRS Issues COBRA Q&As for Stimulus Bill 65% Assistance Payment Provisions" (available at http://www.morganlewis.com/pubs/EconoStimulus_COBRAQ+A_LF_07apr09.pdf).