Many employers believe that by simply sending a former employee appropriate notice under the Consolidated Omnibus Budget Reconciliation Act ("COBRA"), they have adequately complied with applicable law. However, when a company is not self insured, as most companies are not, the company must comply with both federal COBRA laws and Illinois state continuation of coverage laws (Illinois Continuation Law, Illinois Spousal Continuation Law, and Illinois Dependent Child Continuation Law). While employees covered by COBRA will more often than not select COBRA coverage, employees must be given the option of choosing either Illinois continuation coverage or COBRA coverage.
COBRA v. Illinois Continuation Laws
Although COBRA and Illinois continuation laws are similar, certain distinctions affect both the employee and the employer.
One of the more important distinctions is that while COBRA's coverage is generally broader than Illinois', an employee with a spouse over age 55 is entitled to additional coverage not provided under COBRA. When there is a qualifying event (e.g., employee's death, retirement, divorce) the employee's spouse has the right to continue coverage until that spouse becomes Medicare-eligible. This could result in coverage for the spouse for up to ten years. Illinois continuation coverage is available for up to two years for dependents who were insured before the qualifying event. Under COBRA, spouses and dependents are entitled to a maximum of only 36 months of total coverage when there are certain qualifying events.
Costs to the Employer
Under both COBRA and Illinois continuation laws, the employee is responsible for paying not only his/her portion of the insurance premium but also the employer's portion of the premium. COBRA states that the premium for such insurance may not exceed 102 percent of group rate. This equates to both the employee's and the employer's share of the premium and a 2 percent administration fee. Should an employee receive an extension for disability, COBRA permits an employer to charge 150 percent after the initial 18 months.
Under Illinois continuation laws, the employer may not charge the additional administrative fee. However, when a spouse obtains continuation coverage until Medicare eligibility, the employer may then raise premiums and add a 20 percent administrative fee after the first two years of coverage.
If you are currently sending only a COBRA notice to your employees, you should supplement that notice to include Illinois continuation coverage information and an election form. While most group health insurers covering Illinois employers send employees Illinois continuation coverage information, the insurer's failing to do so may subject your company to liability. You should consult with your insurance carrier to ensure that it is providing the appropriate information in the Summary of the Insurance Plan and determine whether the insurer has a particular form it prefers for notice under Illinois continuation laws.
Employers should also remember that there are shorter notice and election periods under Illinois continuation laws. This requires careful coordination with your insurance plan administrator and human resources personnel to ensure that your employees are receiving all necessary information at appropriate times.