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Employer Responsibilities under Federal Health Care Legislation: COBRA and HIPAA

Contents COBRA   What is COBRA?   COBRA Events   The Cost of Coverage   Cobra Rate Charts   Duration of COBRA Coverage   COBRA Member Rights   COBRA Termination   COBRA Notification: General   COBRA Notification for New Employees   COBRA Notification after COBRA Event   COBRA Forms for Downloading   Fact Sheet #25, Employer Responsibilities under COBRA   The Centers for Medicare and Medicaid Services (CMS) and COBRA Continuation of Coverage   HIPAA   What is HIPAA?   Participating Employers' Requirements   HIPAA Forms for Downloading   Notice of Privacy Practices to Enrollees in the SHBP/SEHBP   HIPAA: Member Authorization Form for Use and Disclosure of Protected and Private Information (Member Authorization Form)     Other Information and Links   Mental Health Parity Act   Newborns' and Mothers' Health Protection Act   SHBP/SEHBP Main Page   SHBP/SEHBP Financial   COBRA Rates   SHBP/SEHBP Employee Support Tasks   SHBP/SEHBP Employer Responsibilities, Reporting and Financial

What is COBRA?

COBRA is an acronym for the Consolidated Omnibus Budget Reconciliation Act of 1985, a federally regulated law that gives employees and their eligible dependents the opportunity to remain in their employer's group coverage when they would otherwise lose coverage because of certain qualifying events (see COBRA Events immediately below). COBRA coverage is available for limited time periods (see Duration of COBRA Coverage) and the member must pay the full cost of the coverage plus an administrative fee. The member and/or dependent can increase or decrease their level of coverage; for example, the member can add dependents or elect coverage he or she did not have before.

Initial COBRA and HIPAA Notice to New Enrollees

The employer is required by federal regulation to notify all employees and dependents enrolling in their health plan of the provisions of the federal Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) and the Health Insurance Portability and Accountability Act of 1996 (HIPAA).

The COBRA and HIPAA notifications are intended to inform employees of their rights and obligations under the federal law and must be distributed to all new employees and their dependents. The initial COBRA notification and HIPAA notification must be addressed to the employee and dependents and mailed to the address furnished by the employee, within 90 days of enrollment. The employer must keep a record of the notification.

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The Cost of Coverage

If a "qualified beneficiary" (the person who loses coverage) chooses to purchase COBRA benefits, he or she will pay 100 percent of the cost of the coverage plus a two percent charge for administrative costs.

The cost of the "qualified beneficiary's" COBRA coverage (COBRA rate) depends not only on the "plan" (e.g., NJ DIRECT, Aetna, etc.) and the "contract level" (e.g., Single only, Member and Spouse/Partner, etc.), but also on the employer's prescription drug coverage (either a freestanding prescription drug plan or prescription drugs included in the medical plan).

COBRA Member Rights

While participating in COBRA coverage, a qualified individual has the same right to coverage as all active employees. That means a COBRA subscriber has the right to add or drop dependents from coverage just as active employees may, and can add optional coverage during the annual Open Enrollment period. 

A former employee or dependent who elected to enroll under COBRA has the same opportunity to enroll in any other SHBP/SEHBP coverage offered by the former employer during the Open Enrollment period (as long as the employee or dependent was eligible for that coverage when first enrolling in COBRA). For State employees, eligible coverage would include a SHBP medical plan, dental plan, and the State Prescription Drug Plan. However, all COBRA benefits will end no later than the original COBRA termination date. The addition of a benefit during the Open Enrollment does not extend the maximum COBRA coverage period.

All COBRA subscribers receive Open Enrollment information, mailed directly to the address on file with the SHBP/SEHBP, prior to the start of the Open Enrollment period.

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COBRA Termination

COBRA coverage through the SHBP/SEHBP will terminate when any of the following situations occur:

• The eligibility period expires;

• The COBRA subscriber fails to pay premiums in a timely manner;

• The COBRA subscriber becomes covered under Medicare (affects health insurance coverage only, does not affect dental, prescription or vision care coverage) after COBRA coverage is elected;

• The COBRA subscriber becomes covered under another group plan as either the member or the dependent (unless that plan has a preexisting condition clause)*; or

• The employer (or former employer) no longer provides SHBP/SEHBP coverage to any of its employees. In this case, the employer will provide the employees the opportunity to continue coverage through the new health benefits provider.

*If, after a COBRA subscriber enrolls in COBRA, he or she obtains new coverage which has a preexisting condition clause, the employee may continue under COBRA and pay for coverage of the condition excluded by the preexisting conditions clause. The employee will have to provide information about the preexisting condition clause to the COBRA administrator and only the preexisting condition will be covered. The employee can continue the COBRA coverage to its normal end date or when the preexisting condition clause ends, whichever comes first.

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COBRA Notification—General

The COBRA law requires employers to:

• Notify the employee and dependents of the COBRA provisions when the employee and dependents are first enrolled;

• Notify the employee, the spouse/civil union partner/eligible same-sex domestic partner and children of their right to purchase continued coverage when the employer becomes aware of a COBRA event that causes a loss of coverage;

• Send the COBRA Notification Letter and a COBRA Application (follow this link for a listing of COBRA forms) within 14 calendar days of receiving notice that a qualifying event has occurred, and;

• Maintain records documenting the employer's compliance with the COBRA law.

COBRA Notification for New Employees

Employers are required by the federal COBRA law to notify the employee and dependents of the COBRA provisions when the employee and dependents are first enrolled in the State Health Benefits Program. The COBRA Notification Letter is intended to inform employees of their rights and obligations under this federal law.

The COBRA Notification Letter must be distributed to all new employees and their dependents enrolling in the SHBP/SEHBP within 90 days of enrollment. The initial COBRA notification letter must be addressed to the employee and dependents and mailed to the address furnished by the employee. The employer must keep a record of the notification.

If an employee already enrolled in the SHBP/SEHBP adds a spouse, eligible same-sex domestic partner, or civil union partner to his or her coverage, the spouse/partner must be notified about COBRA within 90 days of the date coverage begins.

The COBRA notification must be written and must be received by the employee and covered eligible dependents. (NOTE: First class mail addressed "To the Family of" the employee sent to the home address meets this requirement. Hand delivery to the employee is NOT in compliance with the law).

The SHBP/SEHBP has provided each employer with a COBRA package that includes an initial notification letter. The initial COBRA notification letter indicating "VERY IMPORTANT NOTICE" may be reproduced on employer letterhead and mailed to new employees and their dependents.

COBRA Notification after a COBRA Event

The employer is required by federal regulation to notify the employee, spouse, civil union partner, or eligible same-sex domestic partner, and/or dependents of their rights to purchase continued health coverage within 14 days of receiving notice that there has been a COBRA qualifying event that causes a loss of coverage.

It is, however, the employee's responsibility to notify the employer of a COBRA qualifying event (divorce, child losing dependent status) within 60 days of the event. If the employee does not inform the employer of the change in status with the 60-day period, the employee may forfeit the dependent's right to COBRA.

A COBRA Application form, with instructions, and a rate chart should be sent with the COBRA notice. The notice will give the date when coverage will end and the period of time over which coverage may be extended. The employer must maintain records documenting compliance with the COBRA law.

The Centers for Medicare and Medicaid Services (CMS) and COBRA Continuation of Coverage

The Centers for Medicare and Medicaid Services (CMS), an agency of the U.S. Department of Health and Human Services, oversees COBRA continuation of coverage as it applies to group health plans sponsored by state and local governmental employers (Title XXII of the Public Health Service Act; 42 U.S.C. 300bb-1 through 300bb-8). CMS will assist qualified beneficiaries, state and local governmental employers, and group health plan administrators in understanding their rights and responsibilities with respect to public sector COBRA continuation coverage.

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What is HIPAA?

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) is a federal law that includes important protections for millions of working Americans and their families who have preexisting medical conditions, or might suffer discrimination in health coverage based on a factor that relates to an individual's health.

The federal Health Insurance Portability and Accountability Act requires health plans, such as the SHBP/SEHBP, to maintain the privacy of any personal information relating to its members' physical or mental health. (See the Notice of Privacy Practices to Enrollees in the SHBP/SEHBP below.)

HIPAA contains several provisions that affect the State Health Benefits Program/School Employees' Health Benefits Program and its participating employers. The SHBP/SEHBP has implemented several actions to comply with the requirements of HIPAA:

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Participating Employers' Requirements

The employer is required by federal regulation to notify all newly enrolling employees and their family members of the SHBP/SEHBP's compliance with federal health insurance regulations. The employer should include the Notice to SHBP/SEHBP Participants about compliance with federal health insurance requirements with the COBRA mailing to all new employees.

The employer also is required by federal regulation to provide employees and their dependents who lose their health benefit coverage with evidence of prior health coverage. The Certificate of Group Health Plan Coverage is a requirement of HIPAA, and must be completed by human resource, benefit, or payroll offices of all participating local and State employers. This form is intended to credit the employee and/or dependents with the period of time they were covered under the SHBP/SEHBP plan. This credit of coverage can be used to fulfill any preexisting condition exclusion provisions that may exist in a new health plan. The longest preexisting condition period under HIPAA is 18 months; therefore, if the participants are covered by a SHBP/SEHBP plan for at least 18 months, that is all that needs to be reported on the Certificate of Group Health Plan Coverage.

HIPAA Forms:

HIPAA: Notice to SHBP/SEHBP Participants

HIPAA: Request for Certificate of Health Coverage

HIPAA: Certificate of Group Health Plan Coverage with Instructions

HIPAA: Notice of Privacy Practices to Enrollees in the SHBP/SEHBP

HIPAA: Member Authorization Form for Use and Disclosure of Protected and Private Information (Member Authorization Form)

Other Federal Health Insurance Requirements

Employers must also inform new enrollees about two additional federal health insurance requirements: The Mental Health Parity Act of 1996, and the Newborns' and Mothers' Health Protection Act of 1996.

Mental Health Parity Act

The Mental Health Parity Act of 1996 requires that the dollar limitations on mental health benefits are not lower than those of medical or surgical benefits. All SHBP/SEHBP health plans meet or exceed the federal requirements, with the exception of mental health parity.

The State Health Benefits Commission has filed an exemption from the mental health parity requirement with the federal Centers for Medicare and Medicaid Services. The visit limits for mental health benefits under NJ DIRECT and the HMO plans will not change. Visit limits for mental health benefits are outlined in the medical plan member handbooks.

All Program health plans meet or exceed the federal requirements with the exception of mental health parity. Parity requires that visit limits on mental health benefits are not lower than those of medical or surgical benefits.

Newborns' and Mothers' Health Protection Act

The Newborns' and Mothers' Health Protection Act of 1996 requires that health plans provide a minimum level of coverage for newborns and mothers, generally 48 hours for a vaginal delivery and 96 hours for a cesarean delivery.

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