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 May 31, 2010;
- is eligible for New Jersey Continuation; and
- is not eligible for Medicare or other group health plan coverage.
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 and the opportunity for people who previously qualified for the nine months of premium reduction to extend it to fifteen months. The March 2, 2010 amendment allows employees who lost coverage due to a reduction in hours to request the premium reduction if their employment is terminated between March 2, 2010 and March 31, 2010. The Continuing Extension Act extends the March 31, 2010 date until May 31, 2010. See the information below if you fit into this category.
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 premium reduction and in the same year exceeds the income limit, he or she will be required to repay all or part of the premium reduction.)
What does it mean to be involuntarily terminated?
Involuntary termination is a termination as directed by the employer. There can be some gray areas regarding whether a termination was actually an involuntary termination. For information concerning whether a termination qualifies as an involuntary termination call the U.S. DOL EBSA at 1-866-444-3272. In the event enrollment for premium reduction is declined because there is a dispute as to whether the termination was an involuntary termination, the affected individual can appeal to the U.S. Department of Health and Human Services. The COBRA ARRA web page has been updated with the application to request the Department's review of denials of the COBRA premium subsidy under the American Recovery and Reinvestment Act. The application is available at www.dol.gov/ebsa/COBRA/main.html which is the first link, Review of Subsidy Denials, under For Employees. The application can be printed and faxed or mailed as indicated on the application. For appeals of New Jersey Continuation premium reduction denials go to the www.dol.gov/ebsa/COBRA/main.html site and click on the link to the Department of Health and Human Services.
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 premium reduction 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 premium reduction?
For employer groups subject to New Jersey Continuation, the carrier is required to send a notice to terminated employees so that the former employees whose employment was/is terminated between September 1, 2008 and May 31, 2010 can request the premium reduction. This is different than for COBRA eligible groups where the employer is required to send the notice.
The model notices that were released by the U.S. Department of Labor on March 19, 2009 are available on the agency’s web site (www.dol.gov/ebsa/COBRAmodelnotice.html). The model notices include a notice that could be used for State continuation.
However, since New Jersey Continuation includes some provisions that are not contemplated by the model notice, we developed a notice for carriers to use to notify terminated employees of the premium reduction.
Please visit the Latest News section of the Small Employer Health Benefits Program Board web site for the text of the sample notice carriers may use: www.state.nj.us/dobi/division_insurance/ihcseh/sehmain.htm
Does the employer have to do anything for New Jersey Continuation?
Yes. Although the employers do not send the notice for premium reduction, the employers nevertheless have a significant role.
First, whenever an employee ceases to work 25 or more hours per week the employee ceases to be eligible for coverage as a full-time employee. This is the case whether the employer terminates the employee’s employment, the employee resigns, has a reduction in work hours, or goes out on disability. Employers should immediately notify the carrier that the employee is not eligible for coverage as of a specific date. By notifying the carrier promptly, the carrier will be in a position to provide the notice required under ARRA.
Second, employers must cooperate with the carriers to verify whether a former employee who elected the premium reduction was in fact involuntarily terminated between September 1, 2008 and May 31, 2010.
Third, if an employer no longer offers group coverage through the carrier whose plan was in effect on the date an employee was involuntarily terminated the employer must provide information regarding whether there is replacement coverage. If there is replacement coverage, the former employee’s New Jersey Continuation option will be under the replacement carrier’s plan. The employer must provide a copy of the election form to the replacement carrier.
Fourth, and very important, the employer must give the former employee notice of his or her rights under New Jersey Continuation and tell the former employee the total cost of continuation coverage.
Lastly, the Temporary Extension Act of 2010 plus the Continuing Extension Act allow premium reduction for former employees whose initial loss of coverage was due to a reduction in hours between September 1, 2008 and May 31, 2010 and who are subsequently involuntarily terminated between March 2, 2010 and May 31, 2010. The employer knows which employees fit that circumstance. The carrier needs to be notified that the employee experienced the subsequent termination of employment. The employer has the information to provide that notice. To ensure the former employee is given the opportunity to request the premium reduction upon the subsequent termination of employment, employers are asked to advise the carrier of the termination of employment.
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 premium reduction no later than 30 days following receipt of the notice from the carrier. This is a special election period. If the former employee was not already covered under New Jersey Continuation the former employee will also need to elect to continue coverage. See the next question for more information on this election.
The premium reduction 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 premium reduction was available as of March 1. If the period of coverage begins on the 15th of the month, the premium reduction was available as of March 15. Please note that neither the coverage nor the premium reduction will be retroactive to the date coverage ended. Further, a person may not defer the effective date of the continued coverage to a current date. If the election is made, the coverage must be effective as of the first period of coverage on or after February 17, 2009. This means a person taking advantage of this special enrollment period will be required to pay the reduced premium for the period beginning with the date the continued coverage takes effect. Of course, if there were expenses incurred during such period the person may file claims to seek reimbursement. The premium reduction period for most people would have run from March 1, 2009 and extended for nine months until November 30, 2009. See the information below concerning the opportunity to resume the premium reduction for an additional six months or until the eighteen month period for New Jersey continuation expires, whichever occurs first.
If a former employee is not eligible for the premium reduction, there is no special enrollment period. In that case, if the former employee did not previously elect New Jersey Continuation, there is no new opportunity to do so now.
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 an employee was involuntarily terminated between September 1, 2008 and February 16, 2009 and initially declined to elect New Jersey Continuation, or elected New Jersey Continuation and later stopped paying premiums, the carrier will notify the former employee of the special enrollment period to elect New Jersey Continuation and the premium reduction. Such employee will have 30 days from receipt of notice from the carrier to enroll for New Jersey Continuation and elect the premium reduction.
Coverage for eligible individuals who enroll during this period will:
- Begin as of the first period of coverage on or after February 17, 2009; coverage is not retroactive to the original termination date, nor can it commence as of a later 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 on 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. While the premium reduction has been extended to allow up to fifteen months, the availability of the premium reduction does not operate to extend New Jersey continuation beyond eighteen months, and thus the premium reduction and New Jersey continuation would both end as of March 1, 2010.
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 commencement of the New Jersey Continuation coverage.
Involuntary termination between February 17, 2009 and May 31, 2010
Employees who are involuntarily terminated between February 17, 2009 and May 31, 2010 must elect New Jersey Continuation within 30 days after the date coverage ends. The premium reduction must be elected at some time during the fifteen month period for the premium reduction.
Since carriers can only send notice of the premium reduction to the former employees to the extent the employer has notified the carrier of the termination it is imperative that employers provide the carrier with timely notice of an employee’s termination.
Nine Months of Premium Reduction Extended to Fifteen Months
As originally enacted ARRA allowed for a maximum period of nine months of premium reduction. For some persons who have already qualified as assistance eligible individuals, the nine month period for the premium reduction under ARRA has expired. Several things could have happened. Some people may have stayed on New Jersey Continuation, and paid the full premium. Some people may have found individual coverage that was less expensive than the full premium for continuation coverage and thus dropped continuation so as to pick up an individual plan. Some people may have decided the full cost for continuation or an individual plan was more than they could afford and they are now uninsured.
Insurance companies will send a notice to all assistance eligible individuals including those whose nine months of premium reduction expired to inform them of the six month extension. Such notice was sent by February 17, 2010, at the latest.
Assistance Eligible Individuals who stayed on New Jersey continuation paying the full premium will be entitled to a refund or credit of the 65% paid. The notice from the carrier includes a form that must be completed and returned directly to the carrier to state that full continuation premium was paid.
Assistance Eligible Individuals who dropped continuation and bought individual plans who wish to return to New Jersey continuation with the premium reduction must complete the request form included with the notice. The continuation coverage will be retroactive to the date it was terminated. The Assistance Eligible Individual must pay the 35% premium for the time after the continuation ended with payment being made no later than February 17, 2010, or 30 days from receipt of the notice from the insurance company, whichever is later. Contact the insurance company that issued the individual plan to terminate the individual plan retroactive to the effective date. Premiums will be refunded. Any claims that were paid will be recovered. Those claims can be submitted under the New Jersey continuation plan.
Assistance Eligible Individuals who dropped continuation coverage and have been uninsured who wish to return to New Jersey continuation with the premium reduction must complete the request form included with the notice. The continuation coverage will be retroactive to the date it was terminated. The Assistance Eligible Individual must pay the 35% premium for the time after the continuation ended with payment being made no later than February 17, 2010, or 30 days from receipt of the notice from the insurance company, whichever is later.
What happens if an employee was provided a severance package which included medical benefits when employment terminated?
The triggering event for continuation is the date coverage was lost and not the date employment terminated. For example, if an employee was terminated July 1, 2008 and provided a six-month severance package which extended medical benefits, the date coverage is lost will be December 31, 2008. However, since employment was terminated July 1, 2008, the former employee would not have been involuntarily terminated between September 1, 2008 and May 31, 2010 and thus would not be approved as an assistance eligible individual. The date of termination of employment must occur during the September 1, 2008 through May 31, 2010 timeframe. Note that with the amendments to ARRA it is no longer necessary that the first date of continuation also occur during that timeframe.
Suppose both spouses worked and although dependent coverage was an option, each elected employee only coverage. One spouse is involuntarily terminated from employment. May such former employee be considered an assistance eligible individual? May such former employee add the spouse to the former employee’s coverage so both get the benefit of the premium reduction?
No. The former employee cannot qualify as an assistance eligible individual because such former employee is eligible for coverage under the spouse’s plan. Eligibility for coverage under another group plan disqualifies a person from the premium reduction. Sometimes coverage under a spouse’s plan is too expensive. Under the Federal law, cost of the other group coverage is not a factor and thus eligibility for that coverage operates to disqualify a person from the premium reduction.
As a follow-up to the prior question, suppose the other spouse is also involuntarily terminated and the business shuts down such that there is no opportunity for coverage under that plan. Could both the former employee and spouse be treated as assistance eligible individuals under the plan of the former employee whose former employer continues to maintain coverage?
Yes for the former employee. No for the spouse. In order to be eligible as an assistance eligible individual the dependent would have to have been covered under the former employee’s coverage on the date before employment terminated.
How will the reduction be applied to New Jersey Continuation Coverage?
Former employees who qualify for the premium reduction 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 through a payroll tax credit. 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.
Since COBRA operates a little differently than New Jersey Continuation and the subsidy only lasts up to 15 months, does the new law change any of the provisions of New Jersey Continuation Coverage?
No.
Duration
Although the premium reduction is available for only a maximum of 15 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 15 months of the premium reduction does not operate to reduce the total continuation period available. The premium for the balance of the period, however, will not be eligible for the premium reduction.
Coverage for dependents
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. Although a dependent does not have an independent right to elect under New Jersey Continuation, such dependent may nevertheless be independently eligible to be treated as an assistance eligible individual. For example, if a terminated employee is already eligible for Medicare such former employee does not qualify as an assistance eligible individual. If the terminated employee nevertheless elects NJ Continuation for himself or herself and dependents, the former employee would be responsible for the full continuation premium for his or her coverage and the reduced premium would apply to the dependents who qualify as assistance eligible individuals.
Election period
Under New Jersey Continuation in connection with the premium reduction, the former employee only has 30 days from termination of coverage in which to elect New Jersey Continuation. The premium reduction may be requested at any time during the fifteen month period for premium reduction. Please note that all other New Jersey Continuation elections remain subject to the provisions of N.J.S.A. 17B:27A-27 and the 30-day election period is measured from the date coverage terminates.
Domestic partners and civil union partners
Under New Jersey Continuation a covered domestic partner and a covered civil union partner have the opportunity to remain covered as dependents when an employee elects continuation. While they still have the opportunity to be covered as dependents of the former employee the premium reduction does not apply to coverage for such dependents. Thus, the former employee may be eligible for the premium reduction and will pay only 35% of the continuation premium for the former employee’s coverage, and the premium to cover the civil union partner or domestic partner will be the full continuation premium for such coverage.
Church groups
Under New Jersey Continuation a church group must allow for continued coverage. The premium reduction 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 premium reduction apply to Over Age Dependent Continuation (DU31) or to the extension for disability pursuant to N.J.S.A. 17B:27-51.12?
The premium reduction is not available for over age dependents continuing under P.L. 2005, c. 375, as amended or to a former employee who is disabled who lost coverage due to disability.
Since New Jersey Continuation is available in the event of a reduction in hours below 25, does the premium reduction apply to an employee whose work hours were reduced below 25, such as to 20 hours per week?
No. A reduction in work hours is not an involuntary termination of employment and therefore the premium reduction is not available. New Jersey Continuation is nevertheless available.
If an employee whose hours are reduced is later terminated from employment can that former employee request the premium reduction?
The Temporary Extension Act of 2010 addresses this situation. The reduction in hours must occur between September 1, 2008 and March 31, 2010 (the Continuing Extension Act extended this to May 31, 2010).
The subsequent involuntary termination of employment must occur between March 2, 2010 and May 31, 2010.
The reduction in hours is the event that triggers the loss of coverage and the ability to elect to continue coverage under New Jersey Continuation. The 18 months available for New Jersey continuation is measured from that loss of coverage due to the reduction in hours.
The subsequent termination of employment triggers an opportunity to request the premium reduction for up to 15 months or the balance of the period remaining for New Jersey Continuation, if less.
The law allows a second chance to elect continuation. If an employee’s hours were reduced below 25 hours per week and the person either did not elect continuation or elected then dropped continuation, the subsequent involuntary termination of employment triggers an opportunity to elect continuation. The 18-month period is measured from the loss of coverage due to the reduction in hours. The former employee who did not previously elect and maintain continuation picks up the continuation coverage as of the first period of coverage on or after the date of the termination of employment. The former employee does not pay any continuation premium for the period between the loss of coverage and the date the continuation begins which means there is no coverage during that period. The gap in coverage during this period will not count in determining whether the person has had a lapse in coverage of more than 90 days for purposes of pre-existing conditions credit.
Can an individual lose eligibility for the group continuation premium reduction?
A person can lose eligibility for the New Jersey Continuation premium reduction in two ways. First, the premium reduction lasts no longer than 15 months. Second, a person becomes ineligible for the premium reduction when he or she becomes eligible for new group health coverage or Medicare.
- Continuees must notify their former employer when they become eligible for new group health coverage.
- Continuees 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 continuee demonstrates “reasonable cause” for the failure.
NOTE: Rules governing eligibility for the premium reduction with New Jersey Continuation differ from rules governing eligibility for New Jersey Continuation without the premium reduction. Eligibility for New Jersey Continuation without the premium reduction ends only when a continuee actually 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 premium reduction.
What if a carrier fails to send the notice of the six month extension of the premium reduction?
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 former employee sends an election to the carrier for the premium reduction and the carrier states the former employee is not eligible?
The U.S. Department of Health and Human Services will handle appeals related to denials of the premium reduction under State continuation laws. The COBRA ARRA web page has been updated with the application to request the Department's review of denials of the COBRA premium subsidy under the American Recovery and Reinvestment Act. The application is available at www.dol.gov/ebsa/COBRA/main.html which is the first link, Review of Subsidy Denials, under For Employees. The application can also be printed and faxed or mailed as indicated on the application. For appeals of New Jersey Continuation premium reduction denials go to the www.dol.gov/ebsa/COBRA/main.html site and click on the link to the Department of Health and Human Services.
What if a New Jersey small employer fails to provide information to a carrier regarding a former employee’s termination or the current status of coverage for the employer group?
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 and/or cooperation 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.
Workers whose employer is covered under federal COBRA should contact the U.S. Department of Labor, Employee Benefits Security Administration, at 1-866-444-3272.
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