Governor Paterson signed into law legislation that makes significant changes to New York State health insurance law in two key respects. The changes do not apply to self-insured plans or flexible spending accounts.
Expansion of COBRA Coverage
The New York legislation impacts employers of all sizes that offer group health plan coverage through an insured plan. Prior to the new law, the State’s insurance rules allowed individuals covered by a small employer plan (fewer than 20 employees) and individuals who do not qualify for coverage under the federal Consolidated Omnibus Budget and Reconciliation Act of 1985, as amended (“COBRA”) to continue group health plan coverage after termination of employment or reduction in hours for a period of 18 months (referred to as “mini-COBRA coverage”). The new legislation requires commercial insurers to extend the mini-COBRA coverage period to 36 months. Thus, an individual not subject to Federal COBRA will be eligible for New York State continuation coverage for up to 36 months for all qualifying events.
The new legislation also permits employees who qualify for Federal COBRA for a period of less than 36 months to be eligible to elect to continue coverage under the New York rules for a maximum 36-month period beginning from the date after their Federal COBRA coverage period has been exhausted. As previously required under both Federal COBRA and New York State rules, employees must pay the insurance premiums to maintain coverage and coverage can be cut short under certain circumstances.
The new rules apply to insurance policies and contracts issued, renewed, modified, altered, or amended on or after July 1, 2009. Notwithstanding the foregoing, Senator Breslin’s office has informally advised us that they will be proposing an amendment to clarify that the effective date of the extended COBRA coverage will be for anyone who received or is covered under COBRA or mini-COBRA on or after July 1, 2009.
Extended Coverage For Unmarried Dependents Through Age 29
The New York legislation allows unmarried children who live, work or reside in New York to remain covered under their parent’s health plan through age 29 (through the day before the child turns 30). The legislation requires commercial insurers that provide group health coverage, individual health insurance or group policies to offer an election to employees to continue coverage for their child if he or she (1) is unmarried; (2) is not eligible for other employer coverage; (3) is not covered by Medicare; and (4) lives, works, or resides in New York State.
This coverage applies regardless of whether the child is claimed as a dependent by the covered parent and regardless of the child’s status as a student. Employers are not required to pay premiums for the adult children or to change their dependent eligibility limits under the plan, but employers will need to determine if they will charge the employee for the additional coverage or direct the covered parent to contact the insurer directly to extend coverage for the child after the plan’s eligibility rules end. For example, if the plan continues to define eligibility for dependent children to be age 19, or age 23 if a full-time student, then once that age is reached, the New York State legislation would provide for extended coverage until the child reaches age 30. Note that some dependents eligible for the extended coverage will not qualify for tax-free health benefits. As a result, employers may need to report imputed income to the employee with respect to any employer contributions or any pre-tax contributions made by the employee to pay the premiums for the extended coverage.
The new rules apply to insurance policies and contracts issued, reviewed, modified, altered or amended on or after September 1, 2009.
Plan sponsors need to decide if they will extend the option and will need to coordinate with their insurance carriers, COBRA administrators and payroll vendors on how these new rules will be implemented. Many plan sponsors will need to provide the insurers with the birth dates for the dependent children. Plan sponsors need to revise employee handbooks, plan documents, enrollment forms, COBRA forms and summary plan descriptions to comply with the new rules. Tax treatment may need to be reviewed and revised for those affected by these legislative changes.