Important Update for Smaller Massachusetts Employers: Mini-COBRA Amendment Requires New Notice Period

In the Press · July 29, 2009

If you are an employer with 2 to 19 employees, you should be aware of a recent amendment to the Commonwealth’s mini-COBRA statute.  This amendment, which was signed into law on July 2, 2009, may require you to give involuntarily terminated employees notice of a new opportunity to elect continued health care coverage. 
 
The amendment was designed to close a gap that prevented some employees from receiving a federally mandated subsidy for continued health care coverage.  The federal subsidy was created by the American Recovery and Reinvestment Act (ARRA) and signed into law by President Obama on February 17, 2009. 
 
ARRA required employers to notify eligible employees of their rights to this new federal subsidy.  However, only those employers large enough to fall under COBRA (the Consolidated Omnibus Budget Reconciliation Act of 1985) were required to offer a special election period to employees who had declined coverage or whose coverage had lapsed before the February 17th effective date of ARRA. 
 
The recent Massachusetts mini-COBRA amendment provides the same special election period for employees of smaller Massachusetts companies that have between 2 and 19 employees. The amendment affects employees who became eligible for continued health care coverage on or after September 1, 2008, but who either did not elect coverage or whose coverage lapsed before ARRA took effect.  These employees are now eligible for the federal subsidy, and insurance carriers need to notify the employees of this change and provide the same special election period.
 
Under ARRA, employees are entitled to a 65 percent federal subsidy of the cost of continued health care coverage if they are involuntarily terminated from their jobs between September 1, 2008 and December 31, 2009, and they elect continued health care coverage under COBRA or comparable state laws.  Employers subject to COBRA must pay the 65 percent up front and obtain reimbursement through a federal payroll tax credit. 
 
For employers too small to be covered by COBRA, but large enough to be covered by Massachusetts mini-COBRA, it is their insurance carriers that pay the 65 percent up front and seek reimbursement from the federal government.  In order to comply with the new mini-COBRA amendment, insurance companies must notify eligible employees of the special election period within 60 days of the effective date of the new legislation, or September 2, 2009.  Insurance companies can, however, delegate this notice requirement to employers. 
 
Qualified beneficiaries will then have 60 days from receipt of notification to elect coverage.  If elected, coverage will be effective with the first period of coverage that begins after enactment of the new law (e.g., August 1, 2009 for plans with calendar month coverage periods).  The new legislation does not extend the 18 month health care coverage continuation period, which continues to run from the original qualifying event.
 
For more information on the earlier changes to COBRA under ARRA, see our March 5, 2009 Alert titled "Important Changes to COBRA Regulations."    If you would like to learn more about the information presented here, or have questions about any employment law matter.