BILL ANALYSIS
SENATE HEALTH
COMMITTEE ANALYSIS
Senator Elaine K. Alquist, Chair
BILL NO: SB 727
S
AUTHOR: Cox
B
AMENDED: As Introduced
HEARING DATE: April 22, 2009
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CONSULTANT:
2
Park/
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SUBJECT
Cal-COBRA
SUMMARY
Requires health care service plans and health insurers to
offer continuation coverage to persons covered by an
employer group plan that is terminated by the employer and
the employer does not provide a successor group benefit
plan to its employees.
CHANGES TO EXISTING LAW
Existing federal law:
Existing law, under the federal Consolidated Omnibus Budget
Reconciliation Act (COBRA) of 1985, gives employees, who
work for employers with 20 or more workers, their spouses,
and dependent children the right to continue group health
coverage provided by the employer generally for up to 18
months when they lose their health care benefits after a
qualifying event, as defined, provided the employer
provides group health coverage for current employees.
Qualifying events include circumstances such as voluntary
or involuntary job loss (except for gross misconduct),
reduction in the hours worked, death, divorce, and other
life events. Existing law requires employees, their
spouses, and dependent children (known collectively as
Continued---
STAFF ANALYSIS OF SENATE BILL SB 727 (Cox) Page 2
qualified beneficiaries) to pay 102 percent of the group
rate when electing continuation coverage under COBRA.
Existing law imposes specified notice, disclosure, and
election requirements on employers and qualified
beneficiaries, related to the election of continuation
coverage under COBRA.
Existing law, under the federal Health Insurance
Portability and Accountability Act of 1996 (HIPAA),
requires that health plans and health insurers in the
individual market issue coverage to "federally eligible
defined individuals," defined as persons who have had 18
months of prior group coverage, are not eligible for
coverage under a group health plan, Medicare, or Medi-Cal,
were not terminated from his or her most recent coverage
for nonpayment of premiums or fraud, and who have exhausted
any COBRA or Cal-COBRA benefits.
Existing state law:
Existing law provides for licensing and regulation of
health care service plans by the Department of Managed
Health Care (DMHC), and provides for regulation of health
insurers by the California Department of Insurance (CDI).
Existing law, under the California Continuation Benefits
Replacement Act, or Cal-COBRA, requires health plans and
insurers that provide coverage under a group benefit plan
to an employer with 2 to19 eligible employees to offer
continuation coverage to a qualified beneficiary (a person
enrolled in the employer's group benefit plan), upon a
qualifying event, without evidence of insurability.
Existing law defines, for purposes of eligibility for
Cal-COBRA, a "qualifying event" as any of the following
events that result in a loss of coverage under the group
benefit plan by a qualified beneficiary: the death of the
covered employee; the termination of employment or
reduction in hours of the covered employee's employment,
except termination for gross misconduct; the divorce or
legal separation of the covered employee from the covered
employee's spouse; the loss of dependent status by a
dependent enrolled in the group benefit plan; and, with
respect to a covered dependent only, the covered employee's
entitlement to benefits under Medicare.
Existing law specifies that continuation coverage
STAFF ANALYSIS OF SENATE BILL SB 727 (Cox) Page 3
requirements under Cal-COBRA do not apply to individuals
who: 1) are entitled to Medicare benefits; 2) who have
other hospital, medical, or surgical coverage or who are
covered or become covered under another group benefit plan,
as specified; 3) are covered, become covered, or are
eligible for federal COBRA or for coverage under a state or
local government group health plan; or, 4) fail to meet
specified notice requirements for qualifying events,
election requirements for coverage, or premium submission
requirements.
Existing law specifies that continuation coverage under
Cal-COBRA shall terminate at the first to occur of the
following: 1) if the qualified beneficiary was terminated
or had a reduction in hours, 36 months after a qualifying
event; 2) for qualified beneficiaries whose qualifying
event was death of the covered employee, divorce or legal
separation, loss of dependent status, or Medicare
eligibility, 36 months after the date the qualified
beneficiary's benefits under the contract would otherwise
have terminated by reason of a qualifying event; 3) the end
of the period for which premium payments were made; 4) the
qualified beneficiary moves out of the plan's service area
or the qualified beneficiary commits fraud or deception in
the use of plan services; or, 5) the employer, or any
successor employer or purchaser of the employer, ceases to
provide any group benefit plan to his or her employees;
Existing law makes separate termination provisions for
Cal-COBRA in the case of disability or for qualified
beneficiaries who have additional qualifying events.
Existing law requires a qualified beneficiary electing
Cal-COBRA continuation coverage to pay not more than 110
percent of the applicable rate charged for a covered
employee or, in the case of dependent coverage, not more
than 110 percent of the applicable rate charged to a
similarly situated individual under the group benefit plan.
Existing law imposes specified notice, disclosure, and
election requirements on health plans and health insurers,
employers, and qualified beneficiaries, related to
Cal-COBRA.
Existing law requires a health plan and a health insurer to
STAFF ANALYSIS OF SENATE BILL SB 727 (Cox) Page 4
offer an enrollee who has exhausted continuation coverage
under COBRA the opportunity to continue coverage for up to
36 months from the date the enrollee's continuation
coverage began, if the enrollee is entitled to less than 36
months of continuation coverage under COBRA. Existing law
requires the health plan and health insurer to offer
coverage pursuant to the terms of Cal-COBRA, including the
rate limitations of 110 percent.
Existing law requires health plans and health insurers in
the individual market to issue coverage, without medical
underwriting, to a "federally eligible defined individual"
defined as a person who has had 18 months of prior group
coverage, is not eligible for coverage under a group health
plan, Medicare, or Medi-Cal, was not terminated from his or
her most recent coverage for nonpayment of premiums or
fraud, and who has exhausted any COBRA or Cal-COBRA
benefits.
Existing law specifies that the coverage for federally
eligible defined individuals shall be the plan's or
insurer's two most popular products or their two most
representative products, and caps premiums for coverage to
federally eligible defined individuals at certain
above-market rates.
Existing law requires group contracts that provides
hospital, medical, or surgical expense benefits for
employees or members to provide that an employee or member
whose coverage under the group contract has been terminated
by the employer shall be entitled to convert to nongroup
membership, without evidence of insurability, as specified.
Existing law requires health plans and insurers to
guarantee renewal of contracts and policies sold to
individuals, with specified exceptions.
This bill:
This bill would additionally require health care service
plans and health insurers to offer continuation coverage to
persons covered by an employer group plan that is
terminated by the employer and the employer does not
provide a successor group benefit plan to its employees.
The bill would require the offered coverage to be for not
less than 18 months from the termination date and to be
STAFF ANALYSIS OF SENATE BILL SB 727 (Cox) Page 5
offered under the same terms and conditions as the former
group plan, but subject to the rules governing COBRA
coverage, to the extent relevant and applicable.
FISCAL IMPACT
Unknown.
BACKGROUND AND DISCUSSION
Author's statement
The author states that, in these difficult economic times,
California businesses are cutting costs wherever they can,
and some have eliminated health care coverage for their
employees as one of those cost-cutting measures, which
increases the number of uninsured workers and families in
our state.
The author notes that, under current state and federal
laws, if a business lays off or terminates employees, the
employees are entitled to continue their health care
coverage, at their own expense, for 18 months; yet, this
continuation of coverage is not available if the employer
simply cancels an employee's coverage by terminating the
health care plan or their contract with a health insurer.
The author highlights that an employee under current law
has very few options if an employer cancels coverage
entirely, and will either become uninsured or seek coverage
in the individual market.
The author states that employees whose health care coverage
is cancelled by their employer, but who continue to work
for that employer, should be given the option of continuing
their coverage at their own expense under the Cal-COBRA
law. The author believes that, in order to reduce the
number of Californians without health insurance, it is
reasonable to permit employees to temporarily continue
their coverage, at group rates, with health care insurers
under the terms of the prior contracts with their employer.
The author states that this allows the insurer to continue
to collect premiums from employees, the employee to
STAFF ANALYSIS OF SENATE BILL SB 727 (Cox) Page 6
continue to have health care coverage, and health care
providers to continue to receive payment for services under
the conditions negotiated in the contract with the
employer.
COBRA versus Cal-COBRA
COBRA, which was enacted in 1985, gives qualified
beneficiaries who have a qualifying event (e.g., voluntary
or involuntary loss of a job, reduction in hours, death of
the covered employee, divorce of the covered employee from
the covered employee's spouse, or the loss of dependent
status by a dependent enrolled in the health plan) the
right to continue their group health coverage through the
employer's health plan generally for up to 18 months. COBRA
applies to employers with at least 20 workers; requires
qualified beneficiaries to pay both the employer and
employee's share of premium and a two percent
administration fee, totaling no more than 102 percent of
the group rate (although disability may extend this cap to
150 percent of the group rate for 11 months after the
initial 18-month period); and is enforced by the federal
Department of Labor.
California's "mini-COBRA" or state COBRA law, called
Cal-COBRA, applies to health plans and insurers offering
small group health coverage to employers with 2 to 19
employees who are not eligible for continuation coverage
under federal COBRA. Premiums in Cal-COBRA cannot exceed
110 percent of the group rate, with specified exceptions,
and is paid entirely by qualified beneficiaries. Cal-COBRA
also applies to individuals who have exhausted their 18
months of continuation coverage under COBRA, and allows a
maximum of 36 months of continuation coverage under
Cal-COBRA, or COBRA and Cal-COBRA combined. Cal-COBRA is
enforced by DMHC and CDI.
Federal and state continuation coverage programs differ as
to who may be considered a qualified beneficiary. Qualified
beneficiaries under federal law include the covered
employee, spouse or a dependent child of a covered
employee, who have been covered under the employer's plan
on the day before the qualifying event. (A special rule
applies for children born to or adopted by a covered
employee during a period of COBRA continuation coverage.)
State law defines a qualified beneficiary as any individual
who, on the day before the qualifying event, is an enrollee
STAFF ANALYSIS OF SENATE BILL SB 727 (Cox) Page 7
in a group benefit plan offered by a health care service
plan or disability insurer and has a qualifying event.
Neither COBRA nor Cal-COBRA continuation coverage rights
apply when a health benefit plan is not available to active
employees
COBRA election
According to a 2009 Families USA report, for most
individuals and families, the cost of COBRA coverage is
prohibitively high, especially when compared to average
unemployment benefits. A Commonwealth Fund issue brief
released in 2009 found that only nine percent of unemployed
adults bought health insurance under COBRA in 2006. The
same study found that employees pay on average 16 percent
for a single-person plan and 27 percent for a family plan,
as their share of employer-sponsored health coverage, based
on recent employer surveys. The jump from 16 percent or 27
percent to 102 percent of premium contribution may
contribute to the low percentage of electors.
According to the National Association of Health
Underwriters, individuals who elect COBRA typically
anticipate a need for their health benefits, and employer
plans report that COBRA participants cost the employer as
much as 150 percent more than the average plan participant
due to adverse selection.
Related legislation
AB 23 (Jones and Fletcher) establishes, for purposes of the
Cal-COBRA program, specific notice requirements and
enrollment opportunities for persons eligible for premium
assistance under the American Recovery and Reinvestment Act
of 2009 (ARRA). Pending in the Senate Appropriations
Committee.
SB 796 (Alquist) would delete the requirement that a person
must elect and exhaust COBRA or Cal-COBRA coverage in order
to qualify for access to guaranteed issue individual health
care coverage under the Health Insurance Portability and
Accountability Act. Referred to the Senate Health
Committee.
Previous legislation
SB 719 (Johnston), Chapter 665, Statutes of 1997, enacted
the California Continuation Benefits Replacement Act
STAFF ANALYSIS OF SENATE BILL SB 727 (Cox) Page 8
(Cal-COBRA) which requires every group health care service
plan contract and group disability insurance contract or
policy providing specified coverage to employers with 2 to
19 eligible employees to offer continuation coverage to a
qualified beneficiary under the contract upon a qualifying
event without evidence of insurability.
Arguments in support
The California Medical Association writes that the bill
would help expand access and provide continuity to health
care coverage by allowing employees to keep their COBRA
coverage when their employer chooses to stop offering
coverage.
Arguments in opposition
None received.
COMMENTS
1.Author's amendments. The author's intent is for the
continuation coverage to apply only to employees (and their
dependents) of employers with between 2 to 19 employees,
and only to those employees who are active employees when
the employer ceases to provide health care coverage to all
of its employees. According to the author, that
continuation coverage would be offered for at least 18
months at the group rate. However, the bill could be read
to be much broader than that. The author proposes the
following amendments to clarify the scope of persons who
would be eligible for continuation coverage under the bill,
and the rate that would be charged for the coverage:
1366.30. (a) Notwithstanding any other provision of
this article, a health care service plan shall also
offer an enrollee of a group benefit plan, as defined
in Section 1366.21, continuation coverage if:
(1) the enrollee is covered by an employer group
benefit plan that is terminated by the employer;
(2) and the employer does not provide a successor
group benefit plan to its employees; and
(3) the enrollee is covered under a subscriber who is
an active employee of the employer at the time the
employer terminates the group benefit plan.
STAFF ANALYSIS OF SENATE BILL SB 727 (Cox) Page 9
(b) The offered coverage shall be for not less than
18 months from the termination date, unless the active
employee is terminated for cause, in which case the
continuation coverage shall cease, and shall be
offered under the same terms and conditions and rate
as the former group plan, but subject to the rules
governing COBRA Cal-COBRA coverage to the extent those
rules are relevant and applicable and do not conflict
with the requirement to provide continuation coverage
to enrollees when an employer ceases to provide group
health benefits , pursuant to subdivision (a). "COBRA"
has the meaning as defined in subdivision (b) of
Section 1366.29.
10128.60. (a) Notwithstanding any other provision of
this article, a health insurer shall also offer an
insured of a group benefit plan, as defined in
10128.51, continuation coverage if:
(1) the insured is covered by an employer group
benefit plan that is terminated by the employer;
(2) and the employer does not provide a successor
group benefit plan to its employees; and
(3) the insured is covered under a policyholder who
is an active employee of the employer at the time the
employer terminates the group benefit plan.
(b) The offered coverage shall be for not less than
18 months from the termination date , unless the
active employee is terminated for cause, in which case
the continuation coverage shall cease, and shall be
offered under the same terms and conditions and rate
as the former group benefit plan, but subject to the
rules governing COBRA Cal-COBRA coverage to the extent
those rules are relevant and applicable and do not
conflict with the requirement to provide continuation
coverage to insureds when an employer ceases to
provide group health benefits, pursuant to subdivision
(a). "COBRA" has the meaning as defined in subdivision
(c) of Section 10128.59.
2.Premium may be insufficient to cover costs of
continuation coverage. Given that the cost of covering
the entire premium under Cal-COBRA and COBRA falls to
individuals, whereas they previously had health premiums
subsidized by the employer, individuals electing
Cal-COBRA and COBRA are often thought to have greater
known health care risks and be adversely selected. To the
STAFF ANALYSIS OF SENATE BILL SB 727 (Cox) Page 10
extent that is true, the premium paid by employees under
this bill may potentially be insufficient to cover the
costs of the services provided, if healthy employees do
not also elect to be covered under this option.
3.Group coverage preferable to individual coverage.
Although individuals who have 18 months of creditable
group coverage are eligible for specified individual
market products under HIPAA at above market rates, and
individuals who have three months of group coverage are
eligible to convert group coverage to specified
individual coverage under specified circumstances,
retaining group coverage is seen as preferable for
continuity of care. Additionally, group coverage is
typically less expensive than individual market coverage,
except for the young and healthy, and typically provides
more comprehensive benefits. Hence, retaining access to
group coverage is seen by many as preferable to obtaining
health coverage in the individual market.
POSITIONS
Support: California Communities United Institute
California Medical Association
Oppose: None received.
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