NJ Small Employer Health Program

NEW JERSEY
SMALL EMPLOYER HEALTH BENEFITS PROGRAM

20 West State Street, 10th floor

PO Box 325

Trenton, NJ 08625-0325

ADVISORY BULLETIN

98-SEH-06

August 7, 1998

To: SEH Program Member Carriers and Interested Parties

From: Wardell Sanders, Executive Director

Re: State Continuation of Coverage

The New Jersey Small Employer Health Benefits ("SEH") Program Board continues to receive a high volume of questions from carriers, brokers and consumers, and other interested parties about New Jersey State continuation of coverage. This advisory memorandum sets forth information about State continuation of coverage, provides answers to commonly asked questions, and includes the provision of the law providing for continuation of coverage.

Pursuant to New Jersey law (N.J.S.A. 17B:27A-27), small employers must offer employees the option to continue their group health coverage when an employee is terminated, goes to part-time status, or ends employment. The employer may require the employee to pay for this coverage in an amount not to exceed 102% of premium. Employers with 20 or more employees (except for the Federal government and certain church-related organizations) must offer continuation of coverage under federal law, commonly referred to as "COBRA," which contains provisions which differ from those described below. State continuation of coverage is available to employees of small employers who are not subject to COBRA.

Under State continuation of coverage, a terminated employee or one on part-time status has the right to continue coverage for up to 12 months. New Jersey small employers have an obligation under State law to notify their employees of the right to continue coverage at the time of termination or at the time the employee assumes part-time status.

An employee who elects State continuation of coverage is required to provide his or her employer with a written request to continue coverage within 30 days of either the termination or the effective date of the decrease in work hours. An employee on State continuation of coverage pays his or her premium to the employer who remits the payment as part of the employer’s regular premium payment. The decision to continue coverage under State law may be made by the employee only; dependents do not have an independent right to elect continuation. An eligible dependent may continue coverage only as long as the former full-time employee is covered as a continuee.

The policy or contract issued to the employer, and the certificate or evidence of coverage issued to the covered employees, more fully outline the procedures that an employee must follow to effectuate State continuation of coverage.

Q: What should be included in the notification to an employee regarding his or her State continuation rights?

A: The law is not specific in this regard, but the SEH Board recommends that the following information be provided in writing to the employee:

A statement that the employee may elect to continue under the group policy for up to 12 months from the qualifying event;
A statement that the employee has 30 days, from the event triggering loss of coverage, to elect in writing to continue coverage;
A statement that the amount of premium to be paid and to whom the payment should be sent. The required premium payment shall not exceed 102% of the premium paid for similarly situated covered persons; and
A statement that the first payment of premium is due from the employee within 30 days of the employee’s written election to continue coverage.

Q: Will the health status of an employee or dependent on State continuation affect the premium for the group?

A: No. Carriers may not consider health status in determining rates for anyone covered under the employer’s plan, including those on State continuation of coverage.

Q: If the employer wants to change coverage or change carriers, what happens to those on State continuation of coverage?

A: If the coverage for the entire group is modified, the coverage must also be modified in the same manner for persons who have elected State continuation of coverage.

Q. Can coverage under State continuation end before 12 months?

A. Yes, coverage under State continuation will cease prior to 12 months if one of the following occurs:

The employer chooses not to provide any health benefits plan to any employees or continuee;
The employee on State continuation fails to provide payment for premium in a timely manner;
An employee becomes covered under another health benefits plan which contains no limitation or exclusion with respect to any preexisting condition of the covered person, or if a preexisting condition limitation is applicable, the date such limitation ends;
The person covered under State continuation becomes eligible for Medicare; or
In the case of dependents who are continuing as part of the employee’s continuation election, the person no longer meets the policy’s definition of a "dependent."

Q. Does an employee need to be covered by the group plan for a certain period of time before he or she is eligible for State continuation of coverage?

A. No. As long as the employee was covered by the group plan, he or she is eligible for State continuation.

Q. If a small employer has only one employee on a health benefits plan, and that employee is terminated or has a reduction in hours, may that employee elect State continuation of coverage even though there would be no active, full-time employees covered under that plan?

A. Yes. A person who no longer meets the definition of an "eligible employee," because employment was terminated or hours of employment were reduced to less than 25 subsequent to the effective date of coverage, may elect State continuation of coverage even if there are no other active full-time employees covered under the plan.

Q. Is State continuation of coverage available for newly acquired dependents where birth, adoption, or marriage occurs after the qualifying event?

A. Yes.

Q. What type of forms will an employee be required to complete to elect State continuation?

A. Some carriers may provide employers with the standard employee enrollment and change form to be completed by the employee electing continuation. Other carriers may have created their own form, or may use a form similar to those used for employees to elect COBRA continuation.

Q. Is State continuation of coverage applicable to dental coverage?

A. No.

Q. If a 22 year old full-time student graduates from college, may he or she elect State continuation of coverage under his or her parents small employer plan?

A. No. State continuation of coverage rights are triggered only when the employee is terminated or goes on part-time status. Since there is no qualifying event for dependents under State law, the graduate may not elect State continuation.

Q: What other coverage options are available to terminated or part-time employees who do not wish to continue their existing coverage?

A: Residents of New Jersey may be eligible for coverage in the individual market. Individuals may receive a free copy of the New Jersey Individual Health Coverage Program Buyer’s Guide by calling 1-800-838-0935.

N.J.S.A. 17B:27A-27 Continued coverage for certain terminated employees

a. Every policy or contract issued to a small employer in this State, including, but not limited to, policies or contracts which are subject to this act and which are delivered, issued, renewed, or continued on or after January 1, 1994, shall offer continued coverage under the plan to any employee whose employment was terminated for a reason other than for cause and to any employee covered by such plan whose hours of employment were reduced to less than 25 subsequent to the effective date of coverage for that employee. The employee shall make a written election for continued coverage within 30 days of a qualifying event. For the purposes of this section, "qualifying event" shall mean the date of termination of employment, or the date on which a reduction in an employee’s hours of employment becomes effective. For the purposes of this section, the date on which a health benefits plan is continued shall be the anniversary date of the issuance of the plan.

b. Coverage continued pursuant to subsection a. of this section shall consist of coverage which is identical to the coverage provided under the policy or contract to similarly situated beneficiaries whose coverage has not been terminated or hours of employment reduced. If coverage is modified under the policy or contract for any group of similarly situated beneficiaries, this coverage shall also be modified in the same manner for persons who are qualified beneficiaries entitled pursuant to subsection a. of this section to continued coverage. Continuation of coverage may not be conditioned upon, or discriminate on the basis of, lack of evidence of insurability.

c. The health benefits plan may require payment of a premium by the employee for any period of continuation coverage as provided for in this section, except that the premium shall not exceed 102% of the applicable premium paid for similarly situated beneficiaries under the health benefits plan for a specified period, and may, at the election of the payor, be made in monthly installments. No premium payment shall be due before the 30th day after the day on which the covered employee made the initial election for continued coverage.

d. Coverage continued pursuant to this section shall continue until the earlier of the following:

(1) The date upon which the employer under whose health benefits plan coverage is continued ceases to provide any health benefits plan to any employee or other qualified beneficiary;

(2) The date on which the continued coverage ceases under the health benefits plan by reason of a failure to make timely payment of any premium required under the plan by the former employee having the continued coverage. The payment of any premium shall be considered to be timely if made within 30 days after the due date or within such longer period as may be provided for by the policy or contract; or

(3) The date after the date of election on which the qualified beneficiary first becomes:

(a) Covered under any other health benefits plan, as an employee or otherwise, which does not contain a provision which limits or excludes coverage with respect to any preexisting condition of a covered employee or any spouse or dependent who is included under the coverage provided the covered employee, for such period of the limitation or exclusion; or

(b) Eligible for benefits under Title XVIII of the Social Security Act, Pub.L.89-97 (42 U.S.C. 1395 et seq.).

e. Notice shall be provided to employees in the certificate of coverage prepared for employees by the carrier on or about the commencement of coverage and by the small employer at the time of the qualifying event as to their continuation rights under the plan. A qualified beneficiary may elect continuation coverage offered pursuant to this section no later than 30 days after the qualifying event. For the purposes of this section, "qualified beneficiary" means any person covered under a small employer group policy.

f. The provisions of this section shall not apply to any person who is a qualified beneficiary for the purposes of continuation of coverage as provided in accordance with section 3011(a) of Title III of Pub.L.100-647 (26 U.S.C. 4980B et al.).

g. In no event shall any continuation of coverage provided for under this section exceed 12 months from the qualifying event.