July 22, 2009 – More Money for Continuation Coverage/More Responsibilities for Employers.
Minnesota has enacted, effective July 1, 2009, a law providing certain Minnesota residents (identified below) with a subsidy for the cost of continuation coverage (both COBRA and Minnesota continuation coverage) in addition to the subsidy available under the American Recovery and Reinvestment Act (“ARRA”). The new law is in Article IV, Section 78 of Chapter 79 of the 2009 Laws, available at: https://www.revisor.leg.state.mn.us/laws/?id=79&doctype=Chapter&year=2009&type=0 .
The additional subsidy is equal to 35% of the premium the individual is required to pay for the coverage. Combined with the ARRA subsidy, individuals eligible for the state subsidy may have the entire cost of continuation coverage subsidized.
Who is eligible? According to the legislation, to be eligible for the state subsidy, an individual must:
- be an individual or the individual’s qualified beneficiaries;
- be eligible for the ARRA continuation coverage premium subsidy (described here);
- elect “COBRA continuation health care coverage;” and
- be eligible under Minnesota law for:
- medical assistance,
- general assistance medical care, or
- MinnesotaCare except for the four (4) month waiting period for MinnesotaCare coverage.
The statute does not define “COBRA continuation health care coverage.” Although ARRA specifies that the federal subsidy is available for continuation coverage provided under a comparable state law, the Minnesota law is not clear on this point. Nevertheless, based upon information contained on its website, the Minnesota Department of Human Services (“DHS”) (the agency that provides the subsidy) takes the position the subsidy is available with respect to continuation coverage provided under federal COBRA and/or state law (i.e., Minnesota Statute Section 62A.17). As a result, “COBRA continuation health care coverage” includes coverage subject to state law, but not to COBRA, such as insured plans sponsored by churches, insured plans sponsored by small employers (with less than 20 employees), and all plans sponsored by small government employers.
Note: As with the ARRA subsidy, the Minnesota subsidy appears to be available with respect to continuation coverage under all group health plans other than health FSAs, including medical plans, dental plans, vision plans, and HRAs.
How is the subsidy obtained? To obtain the subsidy, an eligible individual must apply for the subsidy with DHS. If approved, DHS pays the subsidy directly to the entity to which the eligible individual pays his or her continuation premiums, such as the employer, the employer’s continuation coverage administrator, or in some cases the insurance carrier.
Note: The legislation does not affect an individual’s rights and responsibilities under COBRA or Minnesota continuation law. Accordingly, if premium payments are not made in a timely manner, including premium payments made by DHS, the plan retains the right to terminate the continuation coverage.
When is the subsidy available and how long does it last? The subsidy is available any time after the effective date the statute. However, DHS will not pay the subsidy until the eligible individual’s application has been approved. Accordingly, if an employee’s application has not yet been approved, the employee will need to continue paying 35% of premium after July 1, 2009 to keep coverage in force until the application is approved.
Note: According to the DHS website, if the individual pays premiums prior to approval of the application, DHS will not reimburse the individual.
The subsidy is available for as long as the eligible individual is eligible for the ARRA subsidy.
Are there notice requirements? The law requires employers or plan administrators required to provide notice to “all qualified individuals” under ARRA to include information regarding the state subsidy in any notices provided to Minnesota residents. DHS has drafted a model notice, available at http://www.dhs.state.mn.us/main/groups/healthcare/documents/pub/dhs16_145294.pdf. The law also requires the Department of Employment Economic Development to provide notice to applicants for unemployment benefits.
Note: The model notice is confusing and unclear with respect to certain issues. Prior to using it, we recommend employers adjust the model notice to accurately describe the law and how it applies to the employer’s specific plan(s).
Based upon the language in the legislation, it is unclear to whom the notice must be provided. The law refers to “qualified individuals” to whom notices must be provided under ARRA. However, that term is not used in ARRA. Rather, ARRA requires notices be provided to “qualified beneficiaries” or “assistance eligible individuals.” We assume the Minnesota law intended to refer to qualified beneficiaries. As a result, the law appears to require the inclusion of the state subsidy information in all COBRA election notices and the notice ARRA requires insurance carriers provide with respect to plans not subject to federal COBRA (i.e., the “alternative notice” described in the guidance issued by the U.S. Department of Labor).
Note: The U.S. Department of Labor has previously found state laws that impose an obligation on the employer (as plan sponsor or plan administrator) to notify participants of continuation coverage rights to be preempted by ERISA. Thus, employers sponsoring ERISA-covered plans could take the position ERISA preempts the notice requirement contained in the statute.
Where can employees get additional information? Addition information, and an application for the subsidy, is available on the DHS website at www.dhs.state.mn.us/healthcare/COBRA.
Action Items. In light of this new legislation, employers should take the following actions:
- If not subject to ERISA, include a copy of the (adjusted) DHS model notice along with all continuation coverage election notices provided on or after July 1, 2009 (or ensure your third party administrator takes such action).
- If subject to ERISA, determine whether to assert the law’s notice obligation is preempted by ERISA and if not taking such a position, include a copy of the (adjusted) DHS model notice along with all continuation coverage election notices provided on or after July 1, 2009 (or ensure your third party administrator takes such action).
- Adjust administrative procedures to account for and accept continuation premium payments from the continuation participant and DHS.
Please contact us if you have questions regarding, or need assistance complying with, this new law.
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The information contained in this ALERT is intended for general information purposes only and does not constitute legal advice relative to a specific situation.