BILL ANALYSIS
SENATE HEALTH
COMMITTEE ANALYSIS
Senator Elaine K. Alquist, Chair
BILL NO: SB 838
S
AUTHOR: Strickland
B
AMENDED: February 16, 2010
HEARING DATE: March 24, 2010
8
CONSULTANT:
3
Bain/
8
SUBJECT
Cal-COBRA: premium assistance
SUMMARY
Extends the state law requirements placed on health plans
and health insurers (health plans) offering Cal-COBRA
coverage to notify qualified beneficiaries of their
potential eligibility for federal premium assistance, and
to allow them to enroll in coverage.
CHANGES TO EXISTING LAW
Existing federal law:
Existing law, the federal Consolidated Omnibus Budget
Reconciliation Act (COBRA) of 1985 (Public Law 99-272),
gives employees who work for employers with 20 or more
workers, their spouses, and dependent children the right to
continue employer-sponsored group health coverage
(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 job loss, a reduction in the hours worked, death,
and divorce. Existing law requires employees, their
spouses, and dependent children (known collectively as
qualified beneficiaries) to pay 102 percent of the group
Continued---
STAFF ANALYSIS OF SENATE BILL 838 (Strickland)Page 2
rate when electing continuation coverage under COBRA.
Existing federal law establishes premium assistance for
health benefits under COBRA and state mini-COBRA programs
(which apply to health plans selling to small employers not
covered by federal COBRA) for "assistance eligible
individuals." The federal premium assistance covers 65
percent of the costs of the COBRA coverage. Generally,
individuals eligible for the premium assistance
("assistance eligible individuals") are defined in federal
law as individuals who:
Were "involuntarily terminated" between September 1,
2008, and March 31, 2010; or,
Had a reduction in hours resulting in a loss of health
coverage on and after September 1, 2008 and were then
subsequently "involuntarily terminated" between March 2,
2010 and March 31, 2010.
Existing law makes available premium assistance for periods
of health coverage beginning on or after February 17, 2009.
Premium assistance lasts for up to 15 months, subject to
other limitations.
Existing state law
Existing state law requires health plans and insurers that
provide coverage under a group benefit plan to an employer
with 2-19 eligible employees to offer continuation coverage
to a qualified beneficiary (QB), upon a qualifying event,
without evidence of insurability. This body of law is
known as Cal-COBRA.
Existing state law defines, for purposes of eligibility for
Cal-COBRA, a "qualifying event" as any of the following
events that would result in a loss of group coverage by a
QB if the person did not elect Cal-COBRA coverage:
The death of the covered employee;
The termination of employment or reduction in hours of
the covered employee's employment, except that
termination for gross misconduct does not constitute a
qualifying event;
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,
STAFF ANALYSIS OF SENATE BILL 838 (Strickland)Page 3
With respect to a covered dependent only, the covered
employee's entitlement to benefits under Medicare.
Existing state law requires Cal-COBRA health plans and
health insurers to provide notice to QBs eligible for
premium assistance pursuant to the federal American
Recovery and Reinvestment Act of 2009 (ARRA) of the
availability of that assistance. This notice goes to QBs
who were involuntarily terminated between September 1, 2008
and December 31, 2009. Existing state law also authorized
individuals who were involuntarily terminated dating back
to September 1, 2008 and are therefore eligible for premium
assistance under ARRA, an additional opportunity to enroll
in Cal-COBRA coverage. QBs eligible for premium assistance
can elect Cal-COBRA coverage no later than 60 days after
the date of the notice of the availability of premium
assistance. Existing law authorizes the health insurance
state regulators (the Department of Managed Health Care and
the California Department of Insurance), in consultation
with each other, to adopt emergency regulations in the
event that any federal assistance is or becomes available
to qualified beneficiaries under Cal-COBRA. These
provisions of law were enacted by AB 23 (Jones and
Fletcher), Chapter 3, Statutes of 2009, which took effect
as an urgency statute.
This bill:
This bill would broaden the definition of a "qualified
beneficiary eligible for premium assistance" in Cal-COBRA
to include individuals involuntarily terminated between
September 1, 2008 and February 28, 2010 , instead of
September 1, 2008 to December 31, 2009 in existing law.
This bill requires health plans and insurers to provide to
QBs with qualifying events between January 1, 2010 and
February 28, 2010 a written notice on the availability of
premium assistance. Under current state law, this notice
is required to be provided to QBs with a qualifying event
between September 1, 2008 and December 31, 2009. The
notice must contain information that meets existing state
law requirements, such as the amount of the premium the
person will pay and the eligibility requirements for
premium assistance. A QB receiving this notice, consistent
with current law, could elect Cal-COBRA coverage no later
than 60 days after the date of the notice.
STAFF ANALYSIS OF SENATE BILL 838 (Strickland)Page 4
This bill would require health plans and insurers to
provide QBs with written notice of the extension of premium
assistance. This bill would also allow the Department of
Managed Health Care (DMHC) to designate a model notice or
notices. This bill would exempt the model notice or
notices designated by DMHC from the rulemaking provisions
of the Administrative Procedure Act.
This bill also allows individuals whose Cal-COBRA premium
assistance ended in 2009 to be able to pay premiums
retroactively and maintain Cal-COBRA coverage, through
reference to the first federal extension of premium
assistance in federal law. Current Cal-COBRA makes
individuals who fail to submit a timely or correct premium
payment, or who fail to satisfy other terms and conditions
of the plan contract, ineligible for Cal-COBRA continuation
coverage.
This bill would state legislative intent to enact
legislation that would implement federal legislation, such
as a specific section of the Jobs for Main Street Act, 2010
(HR 2847), that makes changes to the premium assistance
made available under ARRA.
This bill would take effect immediately as an urgency
statute.
FISCAL IMPACT
This bill has not been analyzed by a fiscal committee.
BACKGROUND AND DISCUSSION
According to the author, this bill is intended to conform
state Cal-COBRA law to federal law extending COBRA premium
assistance subsidies. The author notes that last year's
ARRA, also known as the federal economic stimulus bill,
included a 65 percent premium subsidy to individuals who
were eligible for COBRA continuation health coverage
between September 1, 2008 and December 31, 2009. In
response, the Legislature passed, on a bipartisan vote, and
Governor Schwarzenegger signed, AB 23 (Jones and Fletcher),
which established, for purposes of the Cal-COBRA program,
specific notice requirements and enrollment opportunities
for persons eligible for premium assistance under ARRA.
Congress and the President have since twice extended the
STAFF ANALYSIS OF SENATE BILL 838 (Strickland)Page 5
COBRA premium subsidy, and there is the possibility of an
additional extension. The author concludes that additional
state legislation is needed to ensure conformity between
state and federal law.
COBRA and Cal-COBRA
The federal Consolidated Omnibus Budget Reconciliation Act
of 1985, commonly called COBRA, gives workers and their
dependents who have a qualifying event (such as the loss of
a job or a 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. If the employer continues to offer a group
health plan, the employee and his/her family can retain
their group health coverage by paying the full premium at
group rates, which are capped at 102 percent for COBRA and
110 percent for Cal-COBRA. COBRA applies to employers
providing group health coverage who have at least 20
employees. Individuals experiencing a qualifying event
generally have 60 days to elect COBRA/Cal-COBRA coverage.
California's "mini-COBRA" law, Cal-COBRA, applies to health
plans and insurers offering small group health coverage to
employers with 2-19 employees who are not eligible for
continuation coverage under federal COBRA.
Prior to ARRA, premium assistance was not available to
individuals electing COBRA or Cal-COBRA coverage.
Premium assistance under federal law
The federal stimulus bill known as ARRA (Public Law 111-5)
established a system of premium assistance for health
benefits under COBRA, and state mini-COBRA laws such as
Cal-COBRA, for individuals and their dependents who were
involuntarily terminated between September 1, 2008 and
December 31, 2009 (this date has since been extended to
March 31, 2010).
Instead of paying the entire COBRA/Cal-COBRA premium
amount, eligible individuals pay 35 percent of the premium,
and the remaining 65 percent is reimbursable to the
employer or health plan as a credit against certain
employment taxes. The premium assistance applies to
periods of health coverage beginning on or after February
STAFF ANALYSIS OF SENATE BILL 838 (Strickland)Page 6
17, 2009 and lasts for up to 15 months per beneficiary.
Eligibility for premium assistance under ARRA is narrower
than eligibility for Cal-COBRA. Under Cal-COBRA, an
individual can become eligible for Cal-COBRA because of a
loss of employment, a reduction in hours, the death of the
covered employee, the divorce of the covered employee from
the covered employee's spouse, or the loss of dependent
status. By contrast, in order for a person for be eligible
for premium assistance, the individual must be
"involuntarily terminated" and meet the following criteria:
Are eligible for COBRA continuation coverage at any time
between September 1, 2008 and March 31, 2010;
Elect COBRA coverage; and,
Are eligible for COBRA as a result of:
a) Being "involuntarily terminated" between September
1, 2008, and March 31, 2010; or,
b) Had a reduction in hours between September 1, 2008
and March 31, 2010 that resulted in a loss of health
coverage (for example, an employee's work hours were
reduced from full-time to part-time status) and who
were then subsequently "involuntarily terminated"
after March 2, 2010 but before March 31, 2010.
Eligibility for the full amount of premium assistance is
based on income. To be eligible for full premium
assistance, individuals must have a modified adjusted gross
income (AGI) of $125,000 or less ($250,000 for joint
filers). The subsidy is phased-out for higher income
individuals, with a reduced subsidy for individuals with
modified AGI less than $145,000 for single filers (and
$290,000 for joint filers).
Individuals who are eligible for other group health
coverage (such as a spouse's plan), or Medicare are not
eligible for the premium reduction, and there is no premium
reduction for premiums paid for periods of coverage prior
to February 17, 2009.
The premium assistance for an individual on COBRA or
Cal-COBRA ends upon eligibility for other group coverage
(or Medicare), after 15 months, or when the maximum period
of COBRA coverage ends, whichever occurs first.
Individuals paying reduced COBRA/Cal-COBRA premiums must
inform their plans if they become eligible for coverage
STAFF ANALYSIS OF SENATE BILL 838 (Strickland)Page 7
under another group health plan or Medicare.
Recent extensions of federal premium assistance
There have been two federal extensions of premium
assistance since the enactment of ARRA. In December 2009,
Congress passed and President Obama signed into law HR
3326, the federal Department of Defense Appropriations Act,
2010 (DOD Act), Public Law 111-118. The two major
provisions of the DOD Act related to COBRA are:
Extended premium assistance to individuals involuntarily
terminated between January 1, 2010, and February 28, 2010
(the ARRA premium assistance ended December 31, 2009);
and,
Extended the duration of premium assistance for an
additional 6 months (for a total of 15 months).
The 2010 DOD Act also contained a provision which applied
to COBRA and state mini-COBRA laws that allowed individuals
whose premium assistance expired in 2009 (premium
assistance was limited to nine months) to resume their
coverage with premium assistance.
The second extension of premium assistance was in HR 4691
(Public Law 111-114), the Temporary Extension Act of 2010
(TEA), which was signed into law on March 2, 2010. TEA
extended the COBRA premium reduction eligibility period for
one additional month (from February 28, 2010 until March
31, 2010).
TEA also expanded eligibility for premium assistance to
individuals who experienced a qualifying event because of a
reduction of hours (meaning the person lost health
coverage) between September 1, 2008 through March 31, 2010,
which is then followed by an involuntary termination of
employment on or after March 2, 2010 through March 31,
2010. TEA provides a second COBRA election opportunity for
these individuals. These individuals, who either did not
elect COBRA continuation coverage when it was first
offered, or who elected COBRA and subsequently discontinued
COBRA, will have a second opportunity to sign up for COBRA
with premium assistance.
California's uninsured and unemployment data
STAFF ANALYSIS OF SENATE BILL 838 (Strickland)Page 8
Data from the Employment Development Department as of March
10, 2010 indicates that California has 2.4 million people
who are unemployed and an unemployment rate of 13.2
percent.
According to the UCLA Center for Health Policy Research's
(HPR) March 2010 report, nearly 2 million Californians lost
their health insurance during 2008 and 2009. HPR estimates
8.2 million of the non-elderly population were uninsured
for all or part of 2009, representing one quarter of the
non-elderly population. HPR indicates this number
represents a 28 percent increase in the number of uninsured
since 2007, when an estimated 6.4 million Californians
lacked insurance for all or part of the year.
Did premium assistance increase the COBRA election rate?
Prior to the enactment of premium assistance, few workers
elected COBRA coverage, in large part because they must pay
the entire cost of the premium at a time when they are
facing a reduction of hours, divorce, or unemployment. An
analysis from Hewitt Associates (a human resources company)
found that COBRA enrollment has doubled since the enactment
of premium assistance. Hewitt's analysis examined the
COBRA enrollment activity for 200 large U.S. companies
representing 8 million employees. From March 2009 to June
2009, monthly COBRA enrollment rates for Americans eligible
for the subsidy averaged 38 percent, up from 19 percent for
the period of September 2008 through February 2009.
Prior legislation
AB 23 (Jones and Fletcher), Chapter 3, Statutes of 2009,
provided QBs who were involuntarily terminated from
September 1, 2008 through February 16, 2009, who did not
elect Cal-COBRA when it was first offered, or who did elect
Cal-COBRA but who were no longer enrolled (for example,
because they were unable to continue paying the premium), a
new opportunity to elect Cal-COBRA coverage due to the
availability of premium assistance. A state law change was
required to give these individuals a "second chance"
election opportunity to enroll in Cal-COBRA outside of the
normal Cal-COBRA election timeframe. AB 23 also allowed
individuals with a qualifying event between February 17,
2009 (when the federal law was passed) and May 12, 2009
(when AB 23 was signed into law) the choice of having
Cal-COBRA coverage take effect on the date of the
qualifying event, or on the first day of the month
STAFF ANALYSIS OF SENATE BILL 838 (Strickland)Page 9
following their election of Cal-COBRA coverage. AB 23 also
specified the contents of the notice, and gave individuals
an opportunity to elect Cal-COBRA no later than 60 days
after the date of the notice.
Support
The Department of Managed Health Care (DMHC) writes in
support that, during these difficult economic times, it
supports efforts to make health care coverage available and
affordable. By conforming California law to the recently
enacted federal HR 3326 (which extends by six months the
premium assistance made available to certain individuals
under ARRA), SB 838 represents an important step in making
health care coverage available to those individuals most
directly impacted by the current economic downturn. DMHC
writes that it looks forward to working with the author and
stakeholders to ensure that the federal provisions
regarding premium assistance contained in HR 4691 and any
subsequent extensions, as well as the provisions of SB 838,
are implemented in a manner that best serves California
consumers.
The California Medical Association (CMA) writes in support
that this bill makes conforming changes to Cal-COBRA to
help Californians take advantage of an extension in premium
subsidies available through recent federal legislation.
COMMENTS
Policy questions
1. Rationale for state law change. Federal law
establishes eligibility for premium assistance, and the
notice and additional enrollment opportunities are
contained in the two most recent federal extensions of
premium assistance. Because of this, state legislation
does not appear to be necessary for individuals in
Cal-COBRA plans to receive premium assistance under the two
most recent extensions, although there was a question as to
whether the provisions providing a second chance to enroll
for individuals who had a reduction in hours applied to
state mini-COBRA laws.
Enacting a state law that mirrors federal law would clearly
authorize state regulators to enforce the new requirements,
would address any potential immediate need for regulations,
would potentially avoid confusion over whether individuals
STAFF ANALYSIS OF SENATE BILL 838 (Strickland)Page 10
involuntarily terminated after January 1, 2010 by small
employers are eligible for the extension of premium
assistance, and would enable DMHC to require the use of the
information on the state model notices required through AB
23.
2 Should this bill contain specific references to federal
law and specific dates? Under federal law, individuals
involuntarily terminated up until March 31, 2010 are
eligible for premium assistance. The date referenced in
this bill is February 28, 2010 , which is the date contained
in the first extension of premium assistance. This date
has since been extended to March 31, 2010 by TEA. In
addition, this bill references a specific provision of
federal law providing an additional election opportunity in
the DOD Act, but not the most recent provision in TEA.
Additional federal legislation may be enacted this year to
extend premium assistance to a subsequent later date (April
30, 2010 and December 31, 2010 are two dates being
discussed at the federal level). Rather than placing
specific dates in state law with references to the specific
subparagraphs in federal law, a suggested amendment would
be to have state law reference the section of federal law
which contains the premium assistance eligibility dates and
additional election opportunities so the Legislature does
not have to change state law if federal premium assistance
is further extended.
3. State law notification requirements. AB 23 specified
the contents of the required notice, and gave QBs the
ability to elect Cal-COBRA coverage no later than 60 days
after the date of the notice. This bill amends these
provisions to extend them to individuals who were
involuntarily terminated in January and February of 2010.
However, these individuals are already likely to have
received a notice because of federal requirements. A
suggested amendment would be to clarify that the updating
of the dates in California law to mirror the federal
changes does not require an additional notification and an
additional election for those individuals who have already
received a notice and made an additional election because
of federal requirements.
4. Notification of new eligibility group. Health plans
have expressed concern with implementing the federal
STAFF ANALYSIS OF SENATE BILL 838 (Strickland)Page 11
notification requirements of the availability of premium
assistance for individuals who had a reduction in hours
after September 1, 2008 and then are involuntarily
terminated between March 2, 2010 and March 31, 2010 in the
context of Cal-COBRA. These individuals would have
received notice of Cal-COBRA coverage when they had a
reduction in hours, but may not be covered by the health
plan (and may therefore be unknown to the plan) when they
were involuntarily terminated on or after March 2 through
March 31, 2010. The concern expressed by health plans is
they may not be aware of these individuals if they were not
in the health plan at the time of the reduction of hours,
and that meeting the federal requirement will require them
to contact the universe of Cal-COBRA individuals who had a
qualifying event dating back to September 1, 2008 because
the plan may not know whether the Cal-COBRA qualifying
event was a reduction in hours or another other qualifying
event, such as divorce, aging off a parent's policy, or
becoming Medicare eligible. If plans contact all
individuals with a qualifying event dating back to
September 1, 2008, many of them will not be eligible for
the special election or premium assistance because their
Cal-COBRA qualifying event was not a reduction in hours.
One alternative proposed by health plans would be to
require employers to furnish information on employees who
were involuntarily terminated in March 2010 and who had a
reduction in hours after September 1, 2008. Health plans
would then contact those individuals eligible for a new
Cal-COBRA election. This would narrow the universe of
individuals the health plans would have to contact, and
would reduce potential consumer confusion from individuals
who receive a notice but are not eligible for the premium
assistance because their qualifying event did not involve a
reduction in hours. This approach is dependent upon small
employers' furnishing this information on a timely basis to
health plans as plans must provide (under federal law) the
notification to these individuals during the 60-day period
that begins on the date of the individual's involuntary
termination.
POSITIONS
Support: California Medical Association
Department of Managed Health Care
STAFF ANALYSIS OF SENATE BILL 838 (Strickland)Page 12
Oppose: None received
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