New State Coverage Continuation Requirement for Small Employers
October 30, 2018
On April 10, 2018, Gov. Ducey signed SB 1217 into law. The new law, effective Jan. 1, 2019, requires small employer plans with up to 20 employees to provide terminated participants (and their covered dependents) with the right to continue coverage following certain qualifying events (sometimes called “mini-COBRA coverage”). To be eligible, the employee must have been covered under the group health plan for at least three months prior to the qualifying event.
There are a limited number of qualifying events:
- Termination of employment (not including gross misconduct)
- Reduction of hours
- Divorce or separation
- Death of the employee
- The employee becoming eligible for Medicare
- The child reaching the maximum age for coverage under the terms of the plan
- Bankruptcy of the employer (only for covered retirees)
The employer is responsible for providing a terminated participant with notice of the qualifying event, the right to continue the coverage, the cost of continuation coverage and the election procedures. The notice must be postmarked to the participant’s home address within 44 days of the qualifying event. The cost of continuation coverage may not exceed 105 percent of the total premium.
Similar to COBRA, the terminated participant has 60 days from the date of the notice to elect the coverage and 45 days from the date of the election to submit the first premium payment. The maximum coverage period is 18 months. Coverage will terminate earlier if the participant fails to make timely payment, becomes eligible for Medicare or Medicaid, or the employer ceases to provide a group health plan. Also, a dependent child’s coverage will terminate earlier if the child reaches the maximum age under the terms of the plan. There are special rules related to the maximum coverage period for covered employees who are in the military reserve or National Guard, called to active duty, and employment is terminated.
Continuation coverage is available for up to 29 months for a qualified dependent who was disabled at the time of the qualifying event and provides the employer with the Social Security Administration disability determination within 60 days of the determination. The cost of coverage during the disability extension may be up to 150 percent of the total premium.
The Arizona Department of Insurance is tasked with providing a sample notice, which they haven’t yet provided. Small employers should work with the insurer to ensure compliance with AZ state continuation.