In 1997, Governor Wilson signed into law Senate Bill 719 that creates a state-sponsored COBRA program called Cal-COBRA. Cal-COBRA requires every group health plan contract providing coverage to small employers with 2 to 19 eligible employees (and which are not subject to federal COBRA requirements) to offer continuation of coverage to qualified beneficiaries upon the occurrence of certain qualifying events.

The qualified beneficiaries would, upon election, be able to continue their coverage under the group benefit plan contract, subject to the contract's terms and conditions, and other requirements set forth in Senate Bill 719. The bill allows health plans to charge a maximum of 110% of the rate charged to a covered employee.

Employers subject to Cal-COBRA are small employers which employed 2 to 19 employees on at least 50% of their working days during the preceding calendar year. Employers within this category are required to notify their health plan of a qualifying event within 30 days when a covered employee's or subscriber's employment is terminated or there is a reduction in hours that would result in the loss of coverage under the group benefit plan.

A qualified beneficiary must request continuation of coverage in writing to the health plan within 60 days of notification of his or her ability to continue coverage under the group benefits plan.

Please note that legislation is currently being drafted that would amend certain provisions in Senate Bill 719. Meanwhile, if you, as an employer, are subject to Cal-COBRA you must provide any employees currently enrolled in your group benefit plan with a copy of the notice regarding Cal-COBRA and a Qualifying Event Notification Form which may be obtained from your health plan. A copy of which should be kept in your company records.

The IRS recently issued final regulations regarding the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) continuation of health coverage, and at the same time also issued new proposed COBRA regulations. COBRA proposed new issued also time same the at and coverage, health of continuation (COBRA) 1985 Act Reconciliation Budget Omnibus Consolidated regarding regulations final recently IRS> COBRA added health care continuation requirements applicable to certain employer group health plans, and the IRS issued proposed COBRA regulations in 1987 and 1998. Over that period of time, COBRA has been amended numerous times. In the final regulations, the IRS addresses issues raised by previously proposed regulations and provides updates necessitated by legislative changes. The IRS also has proposed new regulations addressing issues such as business reorganizations, applying COBRA to health care flexible spending accounts, and COBRA's interaction with the Family and Medical Leave Act (FMLA). Effective Date:The regulations become effective for qualifying events occurring in plan years beginning on or after January 1, 2000. Before that date, plans and employers must operate in good-faith compliance with a reasonable interpretation of the requirements of COBRA. The IRS will not assess excise taxes for plans and employers that maintain good-faith compliance. However, some courts have not applied any good-faith compliance standard when enforcing COBRA through ERISA or the Public Health Services Act.The following summarizes several changes in the final regulations and the significant items in the proposed regulations.Final Regulations: Group Health Plans Subject to COBRA* If substantially all coverage provided under a plan is for qualified long-term care services, then it is not a group health plan.* Controlled group rules apply to COBRA. An example clarifies that controlled groups include foreign members, and thus a U.S. subsidiary with fewer than 20 employees is subject to COBRA if the controlled group has 20 or more employees worldwide.* The final regulations eliminate the 1987 proposed regulations' special rule for multi-employer plans, which allowed plans to maintain small-employer status if a contributing employer that outgrew its small-employer exception during the preceding year stopped contributing to the plan by February 1 of the current year. Final Regulations: Excise Tax The final regulations reflect COBRA's legislative move from Code §162 (and the loss of deductibility for non-compliance) to Code§4980B (and the imposition of an excise tax for noncompliance). Final Regulations: Qualified Beneficiaries*Any child born to or placed for adoption with a covered employee (not any other qualified beneficiary) during a period of COBRA continuation coverage is considered a qualified beneficiary.*If an individual whose denial of coverage under a group health plan violates applicable law (e.g., HIPAA) experiences an event that would otherwise be a qualifying event, he or she is considered a qualified beneficiary.*A "covered employee" is anyone who is or has been covered under a group health plan due to current or past performance of services for the employer (or by reason of membership in the employee organization maintaining the plan). So, this definition would include retirees and former employees, as well as independent contractors, directors and self-employed individuals. Final Regulations: Qualifying Events*A "loss of coverage" includes an increase in an employee's premiums or contributions due to a COBRA event (e.g., termination of employment, divorce, etc.). Coverage need not cease at the same time as the event, as long as it stops before the end of the maximum coverage period otherwise applicable to the event.*Eliminating coverage in anticipation of a qualifying event is disregarded in determining whether the event results in a loss of coverage. So, for example, if an employee drops spousal coverage and then gets divorced, a plan must make COBRA continuation coverage available upon receiving notice of the divorce. Such coverage is effective on the date of the divorce - not for any period before the divorce. Final Regulations: COBRA Continuation Coverage*The regulations eliminate the requirement to offer "core" coverage separately. So, employers who maintain one health plan covering both medical and dental benefits (without separate election) no longer must offer a choice between the medical (core)-only and medical/dental combined. Only the medical/dental combined benefits need to be offered.*When a qualified beneficiary moved out of the area served by a region-specific plan, the proposed regulations gave him the right to obtain other coverage from the employer if it had employees in the beneficiary's destination area. The final regulations eliminate the condition that the employer must have employees in the destination area; instead, coverage must be made available to the qualified beneficiary if the employer or employee organization could provide coverage under one of its existing plans.*Open enrollment rights extended to active employees must also be extended to similarly situated qualified beneficiaries. Final Regulations: Election Rules*Elections may be made by the qualified beneficiary or on her behalf by a third party (e.g., guardian, health care provider, etc.).*Plans must respond to inquiries from health care providers regarding the qualified beneficiary's right to coverage during the election period, and his right to retroactive coverage if COBRA is elected. This will allow more providers to make COBRA elections for qualified beneficiaries in their care and potentially pay the COBRA premiums. Final Regulations: Duration of COBRA Coverage*COBRA coverage may be terminated if a qualified beneficiary first becomes covered by another group health plan or entitled to Medicare after the date of the COBRA election. This agrees with the recent holding in Geissal vs. Moore Medical Corp. (see Watson Wyatt Insider, July 1998). Coverage under another group health plan includes coverage under a government plan.*"Entitlement" to Medicare benefits means being enrolled in Medicare - not just being eligible to enroll in Medicare Entitlement to either Medicare Part A or Part B is sufficient for the plan to discontinue COBRA continuation coverage (assuming the entitlement arises after COBRA coverage is elected).*The final regulations clarify that terminating employment after a qualifying event that is a reduction in hours of employment does not extend the maximum coverage period. If there is a reduction in hours of employment that results in a loss of coverage, COBRA provides up to 18 months of continued coverage. A later termination does not constitute a second qualifying event (so coverage is not extended by another 18 months). Final Regulations: Paying for COBRA Coverage*Anyone can pay the COBRA premium - a qualified beneficiary or third party (e.g., healthcare provider or new employer).*For the disability extension period from 19 to 29 months, plans generally can charge 150percent of the applicable premium. Under the final regulations, non-disabled qualified beneficiaries can be charged the 150 percent rate if the disabled qualified beneficiary is part of the coverage group. However, if the COBRA coverage group includes only non-disabled qualified beneficiaries during the extension period, plans may charge only 102 percent of the applicable premium.*Upon request, plans must inform health care providers of all details regarding the qualified beneficiary's right to coverage during the applicable grace periods.*Plans may not terminate COBRA coverage because premium payments are short by an insignificant amount. The plan must either disregard the shortfall or notify the qualified beneficiary of the shortfall amount and grant him a reasonable period of time to pay the balance. The final regulations provide a safe harbor of 30days.Proposed Regulations: Flexible Spending Arrangements (Health FSA's)*Health FSA's meet the definition of group health plan in Code §5000(b)(1) and so are subject to COBRA.*Generally, health FSA's that meet two conditions are required to offer COBRA continuation coverage to a qualified beneficiary only for the plan year in which the qualifying event occurs:1.The health FSA is an excepted benefit under HIPAA.2.In the plan year in which the qualifying event occurs, the maximum amount the health FSA could charge for a full plan year of COBRA continuation coverage equals or exceeds the maximum benefit available under the health FSA for the year.The IRS believes that the second condition will be satisfied in most cases. For example, suppose an employee elects a $1,200 health FSA for a calendar year plan and then terminates employment. The health FSA could charge a maximum of $1,224 for a full year of this benefit under COBRA. Since the maximum payment ($1,224) exceeds the maximum benefit ($1,200), COBRA would not be required in any plan year following the qualifying event if the health FSA is accepted from HIPAA.*In addition, if a third condition is satisfied, the health FSA is not required to offer COBRA continuation coverage to a qualified beneficiary at all:3.The maximum benefit available to the qualified beneficiary under the health FSA for the remainder of the plan year does not exceed the maximum amount that the plan could require as a payment for the remainder of that year to maintain coverage under the health FSA. For example, assume an employee elects $1,200 for a health FSA for a calendar year plan, submits $600 of health claims for reimbursement and then terminates on April 30.The maximum benefit available for the remainder of the plan year is $600, and the maximum required payment for the remainder of the plan year is $816([100/month x 8] x 102%). Since the maximum benefit available ($600) is less than the maximum required payment ($816), the health FSA need not be offered in the plan year of the qualifying event.Proposed Regulations: Duration of COBRA Coverage*Under the proposed regulations, plans may terminate COBRA coverage the first day of the month that is over 30 days after a final determination that a qualified beneficiary is no longer disabled. Also, COBRA coverage cannot be terminated before the end of the maximum coverage period that would apply without regard to the disability extension.*If a covered employee becomes entitled to Medicare benefits before a qualifying event that is a termination of employ mentor reduction in hours, the maximum coverage period for qualified beneficiaries other than covered employees ends the later 1) of 36 months after the Medicare entitlement, or 2) 18 months (29 months if a disability extension is involved)after the qualifying event.Proposed Regulations: Business Reorganizations*The proposed regulations allow the parties to a transaction to allocate the responsibility for providing COBRA continuation coverage by contract. If the responsible party performs its obligations, the other party will have no responsibility to provide COBRA coverage. If the responsible party fails to perform its obligations, and if, under the proposed regulations, the other party would be required to provide COBRA coverage in the absence of contractual provisions, then the other party retains that obligation. So, while employers may allocate COBRA responsibility contractually in business reorganization, they also should contract for appropriate security and pursue contractual remedies against a defaulting party.*In a stock sale, a covered employee who remains employed by the acquired organization after the sale does not experience a termination of employment as a result of the sale. So, the sale is not a qualifying event regardless of whether group health coverage is provided after the sale.*Generally, in an asset sale, the sale is a qualifying event with respect to a covered employee whose employment was associated with the purchased assets immediately before the sale. However, there is no qualifying event if 1) the buyer is a successor employer and the employee is employed by the buyer immediately after the sale, or 2) the covered employee(spouse or dependents) does not lose coverage under the group health plan of the seller after the sale.*For both sales of stock and sales of substantial assets, the proposed regulations make the seller responsible for offering COBRA coverage to qualified beneficiaries (both those whose qualifying events occurred before or in connection with the sale) as long as the seller maintains a group health plan after the sale. If the seller stops providing any group health plan to any employee in connection with the sale, the proposed regulations give further guidance on the COBRA responsibilities.Proposed Regulations: Multi-employer Plans*If an employer stops contributing to a multi-employer group health plan, generally, the multi-employer plan continues to carry the COBRA obligations for qualified beneficiaries associated with that employer. By itself, an employer's cessation of contributions to a multi-employer group health plan does not constitute a qualifying event.*Once the employer provides group health coverage to a significant number of employees who were formerly covered under the multi-employer plan, or starts contributing to another multi-employer plan on their behalf, the employer's plan (or the new multi-employer plan) carries the COBRA obligations to the existing qualified beneficiaries.Proposed Regulations: FMLA and COBRA *The proposed regulations generally adopt the rules set forth in IRS Notice 94-103. So, taking FMLA leave is not a qualifying event, but not returning to work after FMLA leave is. The qualifying event is deemed to occur on the last day of the employee's FMLA leave, and the maximum coverage period generally begins on that day.*An employer cannot condition the employee's rights to COBRA coverage on the employee's reimbursement of any premiums paid by the employer to maintain the employee's group health plan coverage during the FMLA leave period. What Next? In light of the new final and proposed COBRA regulations, employers should review their COBRA administrative procedures as well as their COBRA documentation, such as their summary plan descriptions, and revise them accordingly.

1999 Final Regs Allow Insignificant Premium Payments.
Employers face new notice requirement and COBRA time frame.

The Initial COBRA Notice, 30 days to notify a plan administrator, the Qualifying Event Notice, 14 days to send out the Qualifying Event Notice, the 60 day election period, the Secondary Event
Notice, the 45 day retroactive premium payment period, the notice of open enrollment, the 30 day monthly grace period, the Conversion Notice ... does the list ever end? The list of COBRA notices and time frames does eventually end. However, due to a new provision in the 1999 Internal Revenue Service (IRS) Final COBRA Regulations, the list of notification and time frame tracking requirements has realized recent growth.

The additional notification and time frame requirements are a result of a new provision dealing with COBRA premium payments. According to the 1999 Final COBRA Regulations preamble, the IRS had been receiving inquiries regarding termination of a Qualified Beneficiary's COBRA coverage because the premium payment was short by an insignificant amount. The preamble further states that "sometimes the error has been clearly one of transposed digits on a check tendered for payment. in other instances, payment has been short by such a small amount that it would be unreasonable to attribute the shortfall to anything other than mistake."

The 1999 Final Regulations have established a provision for dealing with premium payments that are short by an insignificant amount. Under the new regulations, the plan has two choices:

o treat the payment as satisfying the payment that was required, or
o notify the Qualified Beneficiary of the amount of the deficiency and grant the Qualified Beneficiary a reasonable period of time for the deficiency to be paid.

The regulations suggest that a safe harbor period, such as 30 days, is deemed to be a reasonable period of time for the deficiency to be paid.So, what is the bright side of this information? The 1999 Final Regulations are effective for Qualifying Events occurring in plan years renewing or beginning on or after January 1, 2000. Employers still have time to prepare for implementation of this new provision. Decisions will need to be made: accept insignificant premium payments as payment in full or attempt to recoup the remaining premium due; what does the plan deem to be an insignificant amount; if the decision to recoup remaining premiums is made, a new notice may need to be created and a time period allowing for the insignificant amount to be paid. Employers will also need to discuss this provision with their insurance carrier. Will the carrier allow an additional grace period for an insignificant premium payment? And if an employer allows an additional grace period and then the Qualified Beneficiary never pays the insignificant amount and is terminated from COBRA, will the carrier refund the premium already paid to the employer? It is advisable for employers to request the carrier's Procedure in writing. Consistent procedures and notice language should be in place prior to a plan's effective date with the new regulations.

It is apparent that what may seem to be a relatively simple provision at first sight, may become a very difficult one to actually administer. Over the years, plan administrators have reported that collecting COBRA premiums is one of the largest administrative burdens they face when dealing with COBRA. The burden has just become a little heavier.

Must claims be paid during the COBRA election period? Final Regulations offer clarification ... between the lines.
When a person new to a company's human resources department first learns about the continuation coverage time frames under the COBRA law, their response is usually one of surprise. "We really have to follow that 60 day election period and 45 day period to pay the first COBRA premium?" The next series of questions are "Do we have to tell the beneficiary about all of these dates?" "Do we have to pay premiums during those 105 days?" "If someone elects COBRA, do we put them back on the plan or wait for payment?" 'If we pay the premiums to the insurance carrier and the beneficiary never pays us, do we get our money back?" The answers to these questions are, YES regarding allowing the proper time frames for election and payment, and YES, employers must fully inform beneficiaries of their COBRA rights (including time frames) within the Qualifying Event Notification. The last three questions are slightly more complicated. Therefore, the Internal Revenue Service (IRS) decided to outline some rules for coverage during the election period. Those rules help employers, if you read between the lines and develop a consistent procedure. The 1999 Final COBRA Regulations (effective the first plan year on or after January 1, 2000) outline that insurance coverage may be cancelled when a Qualifying Event occurs as long as the plan allows retroactive reinstatement (to do not have to be paid until back the loss of coverage date). The question premium is paid. Since insurance in the regulations seems to indicate that carriers often ask for all back premiums coverage can be reinstated when the when you reinstate someone on COBRA, employers reinstating at election may lose all or a portion of the premiums they have paid on the beneficiaries' behalf. An employer's query then becomes, "Since the IRS regulations allow claims to be held in suspense until all back premiums are paid by the qualified beneficiary, why reinstate at point of election?" Good question.

Many insurance carriers' internal systems may not differentiate between "elected" and "paid" for COBRA coverage; they may simply indicate that anyone whose name is listed on the plan is covered. This can create difficulties for both employers and insurance carriers. We then asked the IRS if COBRA coverage could be reinstated at the point of payment. An official from the IRS verbally stated that adding Qualified Beneficiaries back on the insurance plan when the first payment is received seems reasonable. (Note: It would be advisable to write the carrier a short letter which states that you will remove beneficiaries from the plan after a COBRA event and reinstate them on the insurance coverage when the first payment for COBRA coverage is received.)

RESPONDING TO HEALTH CARE PROVIDERS' INQUIRIES REGARDING COBRA COVERAGE STATUS
The next area that requires clarification is how employers respond when asked by a health care provider about the coverage status of an individual in their COBRA election period or 45 day retroactive premium payment period. The new regulations list that employers must provide a truthful and accurate response regarding beneficiaries' coverage status. For example, a former employee is in the election period but has not yet elected COBRA coverage. A hospital calls the employer to ask if the person has insurance coverage. The employer cannot simply say there is no coverage. The employer must give the health care provider a complete response by stating that the beneficiary is in their COBRA election period (it may be prudent to state when the election period ends and that coverage is reinstated after the first payment is received).

The same complete response is required if a beneficiary has elected COBRA coverage and is within their 45 day time frame to pay the premium. When asked by a health care provider, the employer should state that the beneficiary has elected and has until the 450, day to pay the retroactive premium. Once the retroactive premium is paid, coverage is reinstated to the loss of coverage date. (Note: Beneficiaries are allowed to pay premiums in monthly increments so someone could take the full 45 days and pay only one month of coverage. Coverage is reinstated for the time for which proper payment was made.) A complete response is also necessary if a health care provider asks about coverage status during the monthly grace period (30 Days or longer if the plan has longer).

When a health care provider requests information on the coverage status of a beneficiary, they should call either the employer or the entity that receives COBRA elections and payments on behalf of the employer. An insurance carrier should not respond to these inquiries if they are unaware of the exact status of the individual because they may not be able to make a complete response. An inaccurate (or incomplete) response can create liability for the employer. For proper liability reduction, employers should discuss this with their insurance carriers and ask them to refer any health care provider's inquiry to the employer or to the COBRA administrator that collects premium payments. Coverage is reinstated for the time for which proper payment was made.) A complete response is also necessary if a health care provider asks about coverage status during the monthly providers with their coverage status questions.

SUMMARY:
1. When a Qualifying Event occurs, remove the beneficiary from the insurance plan according to plan terms. Reinstate once payment is received. (Inform your carrier in writing of this procedure.)
2. Give a complete response to a health care provider regarding beneficiaries' coverage status. The employer or entity receiving COBRA elections and payments is in the best position to accomplish this and reduce liability.

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COBRA REGIONAL AND FIELD OFFICES
Serving: American Samoa, Arizona, Guam, Hawaii, Southern California, and Wake Island You can contact either of the offices listed below.

Los Angeles Regional Office
Mailing Address Phone number
U.S. Dept of Labor/PWBA              (626) 583-7862
Suite 514
790 E. Colorado Blvd.
Pasadena, CA 91101

Pension and Welfare Benefits Administration Division of Technical Assistance & Inquiries

Mailing Address                            Phone number
U.S. Dept. of Labor/PWBA              (202) 219-8776
Room N5625
200 Constitution Ave. NW
Washington, D.C. 20210

THE HIPAA LAW: HEALTH PORTABILITY
If you are worried about keeping your health benefits when you change jobs, you should know about a federal law called HIPAA. It is the Kennedy/Kassebaurn act, also known as the Health Insurance Portability and Accountability Act of 1996, or HIPAA for short. While HIPAA does little for people who do not have insurance in the first place, it does help keep people from losing benefits they already have.

HIPAA says that health plans cannot deny people outright based on their health status; gives workers who change or lose jobs better access to health insurance coverage; limits exclusions for preexisting conditions; and guarantees renewability and availability of health coverage to certain employees and individuals. HIPAA was designed to ease a growing problem known as "job lock" people's reluctance to move from one company to another for fear of losing their health
benefits. (Another federal law called COBRA helps you buy benefits when you are in between employers. See (Know you COBRA rights)

HIPAA offers a modicum of protection, but it has plenty of loopholes, conditions, and exceptions. Make sure you understand what your rights are under HIPAA and what they are not.

PREEXISTING CONDITIONS
Some health insurance companies cut their costs by invoking something called a "preexisting condition" clause. The notion of a preexisting condition makes sense when you're talking about car insurance: your windshield was cracked before you bought your coverage, so you can't expect the insurance company to replace it once your policy is in force. However, it is a more sensitive issue when you are talking about someone's health. Got diabetes? Your current benefit plan may pay for your insulin and doctor visits. However, if you change jobs, your new health plan can call your diabetes a preexisting condition and refuse to treat it. Now you are paying for all of your diabetes treatment yourself, plus the regular out-of-pocket expenses for other medical treatments.

HIPAA limits the instances in which a company can exclude payment for preexisting conditions. This is where it gets tricky:

The definition: A preexisting condition is something for which you have been treated or diagnosed in the last six months.

The time limit: A health insurance company can still refuse to pay for a preexisting condition, but only for 12 months. Late enrollee's in-group health plans may have to wait up to 18 months for coverage of preexisting conditions.

Credit for time served: If you have been continuously covered under another plan, your new health plan must give you credit for time served. Therefore, if you move from one company to another and you have already been denied coverage for a preexisting condition for 12 months, the new health plan must cover your condition. Likewise, if you have been waiting out a preexisting condition clause for eight months, the new health plan can deny you coverage for that preexisting condition only for four months a total of 12 months.
Continuous coverage: In order to keep your coverage continuous, you cannot let it lapse for more than 62 days. That is where COBRA comes in. If you leave one company before starting with another, or if your new company's benefits do not kick in for three months, you should buy COBRA coverage to keep your coverage continuous. Otherwise, you will be back at square one with the 12 month waiting period.

Five types of coverage: There are five types of coverage that may carry an additional waiting period: prescriptions, vision, dental, mental health, and substance abuse treatment. If the health plan wants to, they can look back at prior coverage to see if you had those services. If you did not, then they can apply a separate pre ex on those coverages. Aside from those five, your new health plan will have to cover you regardless of what your coverage was under the old plan.

DISCRIMINATION, CHANGES IN STATUS, AND CERTIFICATION
HIPAA says that health plans cannot discriminate based on health status. They cannot exclude them, cannot take them on different terms, or charge different premiums based on health status.

If you have a change in your family status or your insurance coverage, the health plan also has to offer you a special opportunity to enroll or change your enrollment status. Therefore, if you are covered under your spouse's plan and your spouse loses coverage, your own employer has to offer you coverage. The same goes if you get married, divorced, widowed, or have or adopt a baby. Health plan enrollment must be offered for 30 days, and it cannot count as a late enrollment.

Whenever you leave any health plan, either group or individual, make sure that you get a certificate of coverage. This is the only way to ensure your rights under HIPAA when you are next covered. Your certificate should say:

o How long you were covered under the last plan

o If you had any of these five coverage's: prescription, vision, dental, mental health, or substance abuse treatment (as is mentioned above, health plans can invoke a separate preexisting condition clause if you weren't covered for them under your old plan) any family members included under your coverage.

INDIVIDUAL HEALTH INSURANCE AND HIPAA
All the rights listed above are for people moving from one group health plan to another. HIPAA does not do a lot for people who want to buy individual health insurance. While it does prevent insurers from denying people outright because of their health status, it does nothing to prevent them from jacking up their premiums. If possible, you should buy your coverage through a group plan. You do not necessarily have to have an employer to do so: trade associations and Chambers of Commerce often offer their members group health insurance. In some states, you can get group coverage if you are self employed as a group of one.

Some states have instituted other measures for people who want or need health individual coverage. Basically, what your protections are in the individual market depends largely on the state in which you live.

RIGHTS IN YOUR STATE
HIPAA is a federal law, which means that it applies to all types of health plans, whether they be employer funded (known as self funded ERISA plans) or regular health insurance. However, individual states have also passed measures governing how health insurers can treat customers. In some states, you will have better protections than those provided by the federal law.

For more information regarding Cal-Cobra go to the Frequently Asked Questions section of this web site.

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