The purpose of this bulletin is to clarify the rules with respect to termination of a small employer health benefits plan or an employee or dependent under the plan, and to clarify the relationship between termination and collection of premium. This bulletin is in response to a number of complaints that have been submitted to the staff of the New Jersey Small Employer Health Benefits Program Board. Carriers shall begin to comply with the provisions of this bulletin immediately.

Pursuant to the "Termination of the [Contract][Policy] – Renewal Privilege" section of the standard health benefits plans, an employer has the right to request a termination of the policy at any time. The employer, not the producer, should provide written notice of termination to the carrier. Notice should be provided in advance of the requested termination date when possible. As discussed below, a carrier is not required to honor a request for retroactive termination.

There are a few general principles which shall apply to terminations and collection of premium. First, where an employer provides prospective notice of termination to the carrier, the carrier may collect premium only up to the date of the requested termination. Even if the requested termination date does not coincide with the end of a premium payment period, the carrier is permitted to collect premium only for the period up to the date the termination notice is received or the requested termination date, if later.

Second, where an employer provides a current or retroactive request for termination, the carrier may collect premium for the period up to the date of receipt of the notice of termination or until the end of the "grace period," whichever is earlier. A carrier may, but is not required, to accept a request from an employer for a retroactive termination date. The fact that the group may have bound coverage with a new carrier as of the requested retroactive termination date does not excuse the group from premium obligation up to the date on which the former carrier receives notice. In this instance the former carrier would be entitled to collect a pro rata premium through the date of receipt of the request. The employer would have two health benefits plans for this overlap period and the plans would coordinate benefits consistent with the terms of the contracts.

Third, where an employer does not provide notice of termination, the carrier may collect premium only through the end of the grace period. Carriers are required to accept non-payment of premium as adequate notice of a group’s intention to cancel a plan. In non-payment situations, the carrier is entitled to premium covering the grace period, but nothing beyond the end of that period. Carriers extending coverage beyond the end of the grace period do not have any right to premium for any period beyond the date the plan ends when the grace period ends.

For termination of an individual covered under a small employer plan, the employer should provide the carrier with written notice that the employee will no longer be covered under the group plan. In instance where an employer offers multiple pans and an employee elects coverage under an alternate plan during an open enrollment period, a validly executed waiver form provides sufficient notice that the employee should be terminated from the prior plan.

Lastly, the SEH Board notes that many of the complaints received deal with instances where an employer is seeking to change carriers. Carriers should remember that pursuant to N.J.A.C. 11:21-7.8, they are required to provide notice to an employer within 15 working days of receipt of an application, enrollment forms, and premium whether the carrier is approving or disapproving the employer’s application. If approved, the carrier must make the effective date of coverage no later than the first of the month following the date of notice of such approval. However, a carrier may choose to make coverage available sooner.

Set forth below are examples to help illustrate some of the requirements outlined above.

Example 1: On 12/2 employer faxes a request to its carrier requesting immediate termination. The employer’s premium period was based on a calendar month.

• The carrier is not permitted to collect premium for 12/3 through 12/31; however, the carrier is entitled to pro rata premium for 12/1 and 12/2.

Example 2: On 12/5 employer requests termination retroactive to 12/1 and provides proof of replacement coverage beginning on 12/1.

• The former carrier may require a premium payment through the date of the receipt of the notice (12/5), even if the employer is able to show proof of replacement coverage back to a prior date. However, the former carrier may choose to honor the retroactive termination.

Example 3: The employer fails to pay premium for December, and under the contract, the grace period ends on 12/31. Employer secures replacement coverage with an effective date of 12/15.

• The former carrier may require the employer to pay the premium through the entire grace period, but not for any period beyond the grace period. The employer has two coverages from 12/15 through 12/31.

Example 4: Employer fails to pay premium for December, and under the contract, the grace period ends on 12/31. On 2/1, an employee sees a network provider of carrier, presents the old ID card and pays a copayment to the provider. The provider provides services and supplies and accepts the copayment.

• Same as 3 above - - the carrier may require the employer to pay the premium through the grace period, but may not collect premium for periods subsequent to the conclusion of the grace period even where a former member has sought and received services from a network provider. The carrier may attempt to recover payment for services from the former member who received such services.