On July 29, 2009, New York State Governor David Paterson signed two bills into law that amend the New York State Insurance Law. Both bills increase the period that individuals can continue coverage under an employer-sponsored health insurance policy. One bill extends the state health continuation coverage period from 18 months to 36 months for loss of coverage due to termination of employment or reduction in hours. The other bill requires insurers to continue dependent coverage for unmarried children through age 29 under their parent's health insurance policy. Neither bill applies to self-insured plans.
Continuation Coverage Extended from 18 Months to 36 Months
The Consolidated Omnibus Budget Reconciliation Act ("COBRA") is a federal statute enacted in 1986 that amended the Employee Retirement Income Security Act of 1974 ("ERISA"), the Internal Revenue Code of 1986 (the "Code"), and the Public Health Service Act to provide "qualified beneficiaries" with the right to temporary continuation of employer-sponsored group health coverage at group rates when their coverage is lost due to the occurrence of certain "qualifying events." A qualified beneficiary is generally an individual covered by the group health plan on the day before the qualifying event who is an employee, an employee's spouse, or an employee's dependent child. A qualifying event may be an employee's termination of employment (not due to gross misconduct) or a reduction of hours, death, or divorce or legal separation, or a dependent child's loss of dependent child status. COBRA generally requires that qualified beneficiaries be given the right to continue coverage for up to (i) 18 months if the qualifying event is an employee's termination of employment or reduction of hours, (ii) 29 months if the qualified beneficiary is determined to have been disabled at the time of the qualifying event or within 60 days of becoming eligible for COBRA, or (iii) 36 months if the qualifying event is the death or divorce of the employee, or a dependent child's loss of dependent child status under the terms of the plan.
COBRA generally applies to group health plans sponsored by employers with only 20 or more employees; to provide similar continuation benefits to employees of smaller employers, many states, including New York, have adopted "mini-COBRA" laws. New York's mini-COBRA law parallels COBRA by generally requiring a continuation period of 18 months in the event of termination of employment or reduction of hours, 29 months in the case of disability, or 36 months in the case of loss of eligibility due to death, divorce, or loss of dependent child status. However, New York's mini-COBRA law applies to insured plans only, whereas COBRA applies to both insured and self-insured plans. This discrepancy is due to ERISA preemption concerns: ERISA broadly provides for the preemption of all states laws that relate to an employee benefit plan governed by ERISA, unless the state law regulates insurance, among other things. Thus, New York's mini-COBRA statute is part of the New York State Insurance Law, which is written to regulate not employers but the content of insurance policies issued in New York State.
Under one of the new bills (S. 5471), New York's mini-COBRA statute will now extend coverage from 18 months to 36 months following the loss of employer-sponsored coverage due to termination of employment or reduction in work hours. The bill further provides that an individual who has otherwise exhausted federal COBRA continuation coverage will be permitted to maintain coverage for up to 36 months following the date COBRA coverage began, regardless of the qualifying event, if the individual is entitled to less than 36 months of COBRA benefits. Consequently, regardless of the qualifying event or employer size, New York employees and their covered dependents that have insured health coverage will now be able to secure 36 months of continuation coverage.
The effective date of this bill was July 1, 2009, and applies to all group health insurance policies and contracts issued, renewed, modified, amended or altered on or after July 1, 2009.
Dependent Child Coverage Extended Through Age 29
Another new bill (S. 6030) amends the New York State Insurance Law to require insurers to offer policyholders (i.e., employers) the option to extend dependent coverage through age 29. To qualify for "dependent child" status under the new law, a child must be, without regard to financial dependence, (i) unmarried, (ii) live, work, or reside in New York State or the service area of the insurer, (iii) not be insured by or eligible for coverage under any other employer-sponsored coverage, and (iv) not be covered under Medicare. Prior to this bill, New York State Insurance Law generally did not required insurers to extend dependent coverage to any set age. The new law requires insurers to make the option of extending dependent coverage through age 29 available, but it does not require policyholders to elect this option.
If an employer does not elect to extend dependent coverage through age 29, the insurer is still required to offer continuation coverage for dependents through age 29 as a type of continuation coverage. This coverage is similar to COBRA and mini-COBRA continuation coverage, except that the dependent continuation requirement applies to all employers who offer insured group health coverage, regardless of size. The employee, group member, or dependent may elect this dependent continuation coverage (i) within 60 days after the date the coverage would otherwise have ended due to the child reaching the age limit in the applicable group policy, (ii) within 60 days after the child re-qualifies for dependent child status if coverage for the dependent child previously ended, or (iii) during the plan's annual 30-day open enrollment period. The employee, group member, or dependent child—not the employer—must pay for the cost of this dependent continuation coverage. Note that if the child does not meet the Code's definition of dependent, then the premiums paid for this coverage must be included in the employee-parent's taxable income.
This bill was effective on September 1, 2009, and applies to contracts issued, renewed, modified, altered or amended on or after that date. Dependent children whose coverage terminated prior to the effective date of this bill will have until August 31, 2010 to elect prospective coverage.
What Employers Need to Do
Employers that sponsor insured health benefits in New York should coordinate with their insurers regarding the new laws and update their New York State mini-COBRA notices, federal COBRA notices, election forms, summary plan descriptions, and other communication materials to reflect any necessary changes.