Application of the Group Coverage Continuation Subsidy to Persons Who Worked for New Jersey Small Employers

On February 17, 2009, President Barack Obama signed the American Recovery and Reinvestment Act of 2009 (ARRA), commonly called the Stimulus Plan. ARRA provides for premium reductions and additional election opportunities for health benefits under Federal continuation, commonly called COBRA. Eligible individuals pay only 35% of the COBRA premium and the remaining 65% is reimbursed to the coverage provider (such as an insurance company or HMO or other plan) through a tax credit. The premium reduction applies to periods of health coverage beginning on or after February 17, 2009 and lasts for up to nine months.

Many New Jersey employees work for employers that are not subject to COBRA because the employer employs fewer than 20 employees. New Jersey law (N.J.S.A. 17B:27A-27) provides for continuation that is comparable to COBRA and thus the ARRA applies to employees of New Jersey small employers as well. The purpose of this information is to address how ARRA applies to New Jersey Continuation under group coverage issued to New Jersey small employers to the extent the application to New Jersey Continuation coverage and COBRA continuation coverage are treated differently under ARRA. Except as identified below, they operate in the same manner and the information as it pertains to COBRA would apply.

Questions and Answers:
Who is eligible for the premium reduction for New Jersey Continuation under the AARA?

The term used to identify an eligible individual is an “assistance eligible individual.” An assistance eligible individual is a person who loses group health coverage because of an employee’s involuntary termination between September 1, 2008 and December 31, 2009 and who is eligible for New Jersey Continuation. Recall that New Jersey continuation is not available to a person whose employment is terminated for cause. See the information below regarding involuntary terminations that occurred prior to February 17, 2009.

There is an income threshold such that the premium reduction is only available to individuals whose same year income will not exceed $125,000 for individual filers and $250,000 for joint filers. (If an individual takes advantage of the subsidy and in the same year exceeds the income limit, he or she will be required to repay the subsidy.)

What if an employer goes out of business? Is New Jersey Continuation still available?

No, New Jersey Continuation is only available to the extent the employer continues to offer coverage under a group health plan. If an employer ceases to be in business there will no longer be a group health plan. Additionally, an employer may remain in business, but cease offering coverage to persons still working in the business. In both instances, that of a business closing, or employer ceasing to offer coverage, New Jersey Continuation is not available and thus the subsidy would not be available.

Additionally, while New Jersey Continuation may be available at the time the election is made, such availability will cease if the employer later ceases offering coverage to employees. Continuation only remains an option to the extent the employer maintains the coverage.

How do individuals sign up for the subsidy?

Employers are required to send forms to former employees so that former employees can elect to continue their group coverage and receive the subsidy. Further details about enrollment will be provided by the federal Department of Labor. Model language for the notice is expected within 30 days after enactment of ARRA, or March 19, 2009. For updated information on the notice and election process contact the Department of Labor at 1-866-444-3272 or visit the agency’s website: United States Department of Labor

Involuntary Termination between September 1, 2008 and February 16, 2009

Employees who were involuntarily terminated between September 1, 2008 and February 16, 2009 must make an election for the subsidy no later than April 18, 2009. This is a special election period. The subsidy applies to periods of coverage on or after February 17, 2009. For plans where the period of coverage begins on the first of the month, the subsidy will be available as of March 1. Neither the coverage nor the subsidy will be retroactive to the date coverage ended.

Involuntary termination between February 17, 2009 and December 31, 2009

Employees who are involuntarily terminated between February 17, 2009 and December 31, 2009 must elect New Jersey Continuation within 30 days after coverage ended due to involuntary termination of employment and must sign up for the subsidy within that same 30 day period. Note that this 30-day period tracks the election period in the New Jersey Continuation law and is different than the election period applicable to COBRA.

How will the subsidy be applied to New Jersey Continuation Coverage?

Former employees who qualify for the subsidy will only be required to pay 35% of the New Jersey Continuation premium. The carrier initially “pays” the remaining 65%, and the government will later reimburse the carrier. The New Jersey Continuation premium may actually be 102% of the premium. The 35% and the 65% are applied to that 102% of premium amount.

What happens if an employee was terminated between September 1, 2008 and February 16, 2009 but either did not elect New Jersey Continuation, or elected it then lapsed due to non-payment?

If your employment was involuntarily terminated between September 1, 2008 and February 16, 2009 and you initially declined to elect group continuation coverage, or elected group continuation coverage and later stopped paying premiums, your employer should notify you of an additional opportunity to elect group continuation coverage and receive the subsidy. You will have until April 18, 2009 to enroll.

Coverage for eligible individuals who enroll during this period will:

Begin as early as February 17, 2009; and for calendar month periods of coverage, on March 1, 2009; coverage is not retroactive to the original termination date.

End on the date coverage would have ended if the eligible individual had elected New Jersey Continuation coverage when he or she first became eligible. For example, if an employee was involuntarily terminated September 1, 2008, did not elect New Jersey Continuation after the termination, but now chooses to elect New Jersey Continuation, his or her continuation coverage ends on March 1, 2010 which is 18 months from when he or she first became eligible for New Jersey Continuation, not 18 months from an election during the special election period.

When providing coverage to former employees who elect group continuation coverage during this special election period, carriers may not apply pre-existing condition coverage limitations based on a gap in the coverage between the termination of coverage and the and commencement of the New Jersey Continuation coverage.

Since COBRA operates a little differently than New Jersey Continuation and the subsidy only lasts up to 9 months, does the new law change any of the provisions of New Jersey Continuation Coverage?

No. Although the subsidy is available for a maximum of 9 months, the maximum duration of New Jersey Continuation coverage continues to be 18 months for persons who lose coverage for involuntary termination of employment. The 9 months of the subsidy does not reduce the continuation period to only 9 months.

Under New Jersey Continuation the only person entitled to make an election in the event of involuntary termination of employment is the former employee. Dependents may be continued as “tag-alongs” but do not have an independent right to elect continuation due to involuntary termination of employment. This is different from how COBRA operates.

Under New Jersey Continuation the former employee only has 30 days from the date coverage ends in which to elect New Jersey Continuation and sign up for the subsidy.

Under New Jersey Continuation a domestic partner and a civil union partner have the opportunity to be continued as dependents when an employee elects continuation. While they still have the opportunity to be covered as dependents of the former employee, it is our understanding the subsidy may not apply to coverage for such dependents. We are awaiting guidance from the Federal Government and will update this response upon receipt of such guidance.

Under New Jersey Continuation a church group must allow for continued coverage. The subsidy is available to employees who are involuntarily terminated from a church group. This is different from COBRA which does not require continuation for church groups.

Does the subsidy apply to Over Age Dependent Continuation (DU31)?

The subsidy is not available for over age dependents continuing under P.L. 2005, c. 375, as amended.

Can an individual lose eligibility for the group continuation subsidy?

You can lose eligibility for the group continuation subsidy in two ways. First, the subsidy lasts no longer than 9 months. Second, you become ineligible for the subsidy when you become eligible for new group health coverage or Medicare.

Beneficiaries must notify their former employer when they become eligible for new group health coverage.

Beneficiaries who willfully neglect to notify their former employer of their eligibility for a new group health plan must repay 110% of the subsidy to the federal government. No such penalty shall be imposed if the beneficiary demonstrates “reasonable cause” for the failure.

NOTE: Rules governing eligibility for subsidized New Jersey Continuation differ from rules governing eligibility for unsubsidized New Jersey Continuation. Eligibility for unsubsidized New Jersey Continuation ends only when a continuee enrolls in new group coverage or Medicare. However, simply being eligible for new group health coverage disqualifies an individual from receiving the New Jersey Continuation subsidy.

What if a carrier refuses to allow a former employee whose coverage terminated between September 1, 2008 and February 16, 2009 to now elect New Jersey Continuation?

The New Jersey Department of Banking and Insurance will take appropriate action to ensure carrier cooperation. Please contact Ellen DeRosa at 609-633-1882 ext 50302 or by e-mail at ellen.derosa@dobi.state.nj.us.

What if a carrier refuses to pay the 65% for a former employee electing New Jersey Continuation?

The New Jersey Department of Banking and Insurance will take appropriate action to ensure carrier cooperation. Please contact Ellen DeRosa at 609-633-1882 ext 50302 or by e-mail at ellen.derosa@dobi.state.nj.us.

What if a New Jersey small employer refuses to provide New Jersey Continuation coverage or fails to provide notice of the subsidy?

The New Jersey Department of Labor and Workforce Development will take appropriate action in the event of an employer’s failure to comply with this law.

Workers who have concerns about their employer’s compliance with New Jersey Continuation Coverage requirements under the ARRA may contact the New Jersey Department of Labor and Workforce Development, Division of Wage and Hour Compliance, in writing at P.O. Box 389, Trenton, NJ 08625-0389, by telephone at (609) 292-1704 or via e-mail at wage.hour@dol.state.nj.us.

For more information on New Jersey State Continuation go to the:New Jersey Department of Banking & Insurance

Workers whose employer is covered under federal COBRA should contact the: Department of Labor, Employee Benefits Security Administration at (866) 444-3272.