HEALTH INSURANCE;

INSURANCE - HEALTH;

You asked whether people covered by PA 03-77 could be required to pay a higher premium for group health insurance than they paid when they were full-time employees. Our office is not authorized to give legal opinions and this report should not be considered one.

SUMMARY

People covered by PA 03-77 can be required to pay the amount they paid plus the amount their employer paid plus 2% for administrative costs because continuation of coverage must be under federal requirements established by federal law (COBRA) and federal law permits this. We have enclosed COBRA rates that currently apply to state employees.

PA 03-77 requires group health insurance plans to give people who terminate their employment, take a leave of absence, or reduce their hours because they become eligible to receive social security benefits an option to continue their coverage under the group plan. It requires this coverage to continue for the employee and his dependents until midnight of the day preceding his eligibility for Medicare. Prior law required only an 18-month extension for any kind of employment termination, leave of absence, or reduction in hours. Under federal law, people can retire with a reduced social security benefit at age 62, but they are not eligible for Medicare until age 65, unless they are disabled.

This change does not apply to employers who self-insure their health benefits.

COBRA

The Consolidated Omnibus Budget Reconciliation Act (COBRA, 29 U. S. C. A. § 1161 to 1168) requires employers who provide group health insurance to give employees (and their dependents who were covered under the plan) who would otherwise lose health insurance due to a “qualifying event” the option to purchase continued coverage under the plan (29 U. S. C. A. § 1161). A “qualifying event” is an event such as death, termination, divorce or legal separation, or eligibility for benefits under title XVIII of the Social Security Act, “which, but for the continuation coverage . . . would result in a loss of coverage of a qualified beneficiary. ” 29 U. S. C. A. § 1163). The scope of the continuation coverage must be “identical to the coverage provided under the plan to similarly situated beneficiaries under the plan with respect to whom a qualifying event has not occurred. ” (29 U. S. C. A. § 1162 (1)). If the qualifying event is termination, the coverage must extend for 18 months after the date of termination (29 U. S. C. A. § 1162(2)(A)(i)).

A central feature of COBRA is that it does not require employers to pay the premium for continuation coverage (29 USCA §1161 et. seq. ; Draper v. Baker Hughes Corporation 892 F. Supp. 1287 (1987)). Although an employer may do so, the statute permits the employer to pass on the entire cost of continued group coverage to the qualified beneficiary. An employer's ability to require a COBRA beneficiary to pay the cost of continued group coverage is subject to certain constraints. The most important is that the COBRA premium paid by the beneficiary “shall not exceed 102 percent of the applicable premium for such period. . . . ” (29 USCA § 1162(3)). “Applicable premium” means:

“The cost to the plan for such period of the coverage for similarly situated beneficiaries with respect to whom a qualifying event has not occurred (without regard to whether such cost is paid by the employer or employee). ”

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