Pennsylvania Labor and Employment Blog : Pennsylvania Labor and Employment Lawyer & Attorney : McNees Wallace & Nurick Law Firm : Human Resources, Workplace and Business Law : Harrisburg, Lancaster, Allentown, Lehigh

Effective July 10, 2009, medical insurers covering small employers in Pennsylvania will be required to offer COBRA-like continuation coverage to qualified employees and their eligible dependents. The new law covers small employers who have between two and 19 employees on a typical business day during the preceding calendar year. 

The so-called mini-COBRA coverage expands on the federal COBRA law that covers employers with at least 20 employees and allows employees who are involuntarily terminated to qualify under a federal economic stimulus law for a 65% federal subsidy of both COBRA and mini-COBRA premiums.

Like the federal law, qualifying events for coverage under the new Pennsylvania mini-COBRA are loss of group coverage due to termination of employment, death, divorce or marital separation. However, there are some key differences between the federal COBRA  and Pennsylvania’s mini-COBRA law, some of which are as follows:

• Under the Pennsylvania law, an employee or dependent must have been continuously covered by medical insurance for three months prior to termination of coverage and may not be covered or eligible for coverage under another medical plan or Medicare.
• Under the Pennsylvania law, continuation coverage must be extended for nine months; under federal COBRA law, coverage is available up to 18 months when employment is terminated and 36 months in situations involving death, divorce or legal separation.
• Under the Pennsylvania mini-COBRA law, beneficiaries can be charged a premium up to 105% of the group rate; federal COBRA beneficiaries can be charged a premium of up to 102% of the group rate.
• Pennsylvania mini-COBRA obligations apply to insurers; federal COBRA applies to employers that provide medical coverage through self-insurance or insurance products.

Employers and insurers will need to provide notices to employees and dependents of the provisions of the new law as well as their rights to elect continuation coverage upon the occurrence of a qualifying event.

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The American Recovery and Reinvestment Act has passed both the House and Senate and awaits the President's signature. The substance of the Act as it relates to COBRA continuation subsidies is as follows:

COBRA Subsidy: Eligible Employees who are involuntarily separated from employment can receive a 65% subsidy toward COBRA premiums for up to 9 months. The Eligible Employee or a third party must pay the remaining 35% of the COBRA premium. Employers cannot pay this amount. Severance agreements that offer employer-paid health continuation should be drafted to take advantage of the subsidy.

Employee Eligibility: Individuals who have been involuntarily terminated between September 1, 2008 and December 31, 2009 with annual incomes less than $125,000 (individual) or $250,000 (joint) are eligible for the COBRA premium assistance. The amount of the subsidy covers both employee and family coverage. The premium assistance is not considered income to the Eligible Employee. 

Employer/Health Plan Payroll Tax Credit: Employers or health plans (if they administer COBRA benefits) must front the COBRA subsidy amount and in exchange receive a credit against payroll taxes for the cost of the subsidy. 

Duration of Subsidy: The subsidy terminates upon offer of any new employer-sponsored health care coverage or Medicare eligibility.

Special Elections and Alternate Enrollment Options: Qualified individuals, who initially decline COBRA coverage, have an additional 60 days after they receive notice of the special election period to elect to receive the subsidy. The election period begins on the date of enactment. Group health plans may provide a special enrollment right for eligible individuals to elect different coverage under the plan in conjunction with a COBRA continuation coverage election. The alternate coverage must meet certain requirements and may not be more expensive than the original coverage.

 Notice Requirements: COBRA notices must include information on the availability of the premium assistance. Model notices from the Department of Labor will be published 30 days after enactment.

Effective Date:  The law is effective for premiums as of the first calendar month following the date of enactment.

UPDATE:  IRS Releases Information for Employers to Claim COBRA Assistance Credit on Payroll Tax Form

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