In This Issue:

• AB 1401 Makes Changes to COBRA, MRMIP and Conversion Coverage
• COBRA and Cal-COBRA
• MRMIP High Risk Pool
• HIPAA and Health Plan Conversion Coverage

AB 1401 Makes Changes to COBRA, MRMIP and Conversion Coverage

AB 1401 is a California Assembly bill intended to provide greater access to health insurance coverage for individuals who are unable to obtain coverage in the individual health insurance market. The major provisions of the law:

• Require insurers to extend the COBRA continuation coverage period for certain qualified beneficiaries.
• Make modifications to the California Major Risk Medical Insurance Program (MRMIP), the state’s high-risk pool for medically uninsurable individuals, and
• Require health plans to offer conversion coverage for terminated contracts.

COBRA and Cal-COBRA

Under current law, Federal COBRA and Cal-COBRA terminate after 18, 29 or 36 months, depending on the beneficiary’s status. AB 1401 requires health plans and insurers to offer COBRA coverage for up to 36 months to all COBRA beneficiaries insured under a California group contract, whether covered under Federal COBRA or Cal-COBRA. After an individual exhausts their coverage under either Federal COBRA or Cal-COBRA, they will be eligible for continued coverage under Cal-COBRA, up to a total of 36 months of continuation coverage.

Federal COBRA is a mandated offering for employers with 20 or more eligible employees. In the state of California, Cal-COBRA coverage is currently offered to employers with 2 to 19 eligible employees.

What Employers Need to Know

• The obligation for administering the extended COBRA coverage falls to the insurer, not the employer. However, employers have certain notification requirements. See below.
• The law applies to insured plans only; self-funded plans are exempt from State regulation. However, the law applies to:
  1. Insured PPO plans based in California, including all enrollees residing in and out of California. (Self-funded PPO plans are exempt from State regulation.)
  2. All HMO, EPP and POS plans based in California, regardless of type of funding.

What Employers Need to Do

• COBRA availability notices to terminating employees should include information on the availability, terms and conditions of conversion coverage.
• Coverage termination notices to Federal COBRA recipients insured in California should include a statement of the availability of additional state continuation coverage and conversion coverage.
• Small employers that notify Cal-COBRA recipients of continuation coverage termination should adjust the timing of the notices to reflect the longer coverage period. Beginning January 1, 2003, small employers should verify that insurers have included information regarding the extended coverage period in certificates of coverage distributed to new hires.

Other Points of Interest

• This provision takes effect September 1, 2003 and applies only to individuals who begin receiving Federal COBRA or Cal-COBRA coverage after January 1, 2003. For example, a COBRA continuee who began their COBRA coverage on December 1, 2002 would be ineligible for this Cal-COBRA extension.
• Covered individuals’ premium rates may be affected by a transition from COBRA to Cal-COBRA. Under Federal COBRA, qualified individuals may be required to pay the entire premium, up to 102% of the employer’s cost for months 1 through 18. Under Cal-COBRA, premium rates can go up to 110% of the cost of coverage. For both plans, after 18 months of coverage, premium rates can increase up to 150% of the group rate for individuals who are disabled.

MRMIP High Risk Pool

In 2002, the MRMIP covered more than 16,000 individuals who were ineligible for Medicare and were denied individual health insurance due to their health status. MRMIP contracts with five health plans (four private and one public). The costs are paid by subscriber premiums and subsidies from the Cigarette and Tobacco Products Surtax (Proposition 99).

AB 1401 will make several amendments to California’s MRMIP as a four-year pilot program from September 1, 2003 through September 1, 2007. Changes to the program include limits on an individual’s enrollment period in MRMIP; premium limits; increased annual benefit maximums; and conversion privileges. Also, the new law mandates that the State and health plans/insurers equally share the cost of subsidies paid out for MRMIP "graduates."

HIPAA and Health Plan Conversion Coverage

AB 1401 contains several provisions regarding health plan conversion coverage. One provision notable to employers is that the new law requires that health plans (generally HMOs) offer conversion coverage if the contract between the health plan and the employer terminates, or an employer’s participation in the group health plan terminates and is not replaced by similar group coverage within 15 days. Employees cannot be denied coverage due to their health status or a pre-existing condition if conversion coverage is offered under these circumstances.