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Continuation of Coverage
NJ Small Employer Health Benefits Program Buyer's Guide
 
Small employer health benefits plans contain continuation of coverage provisions that may be exercised when certain covered persons lose eligibility.  Some small employers will be subject to the continuation rights established by the federal law referred to as COBRA.  Most small employers will be subject to the continuation rights established by New Jersey law, referred to as the New Jersey State Group Continuation (NJSGC) right.  The laws are similar, but there are some differences.  In addition, New Jersey law sets forth a special continuation right for certain employees that terminate employment due to total disability.
 
Brief Comparison of COBRA and NJSGC

Both COBRA and NJSGC:
  • Establish continuation rights for most of the same groups of qualified beneficiaries – employees, spouses and child dependents – if covered under the health benefits plan immediately preceding the qualifying event.
  • Establish continuation rights as the result of most of the same types of qualifying events.
  • Establish continuation periods of the same duration.
  • Permit the employer to require that the person who elects to continue the coverage pay 100 percent of the cost of the coverage, plus a 2 percent administrative fee (that is, 102 percent of the cost).

NJSGC differs from COBRA in that:

  • COBRA entitles a former employee’s spouse to maintain the continued coverage for the duration of the continuation period even after the former employee enrolls in Medicare, but NJSGC does not.
  • COBRA applies to employers with 20 or more employees, with some exceptions (such as church plans).
  • NJSGC applies to employers with one to 50 employees, including employers to whom COBRA does not apply, if the employer purchases a small group health benefits plan.
Groups with 20 to 50 eligible employees must comply with both COBRA and NJSGC.   A group with 20 to 50 eligible employees must allow a former employee’s spouse to maintain continued coverage even after the former employee enrolls in Medicare because COBRA provides that protection to spouses, although NJSGC would not require it.  In addition, church plans of employers with one to 50 employees must comply with NJSGC, even though they do not have to comply with COBRA at all.  For more detail, refer to Advisory Bulletin 07-SEH-02. 
 
The information that follows is specific to the NJSGC.  For more information about COBRA, see “An Employee Guide to Health Benefits Under COBRA,” published by the Employee Benefits Security Administration of the U.S. Department of Labor.      
 

Employees, Qualifying Events and Duration of Continued Ccoverage


The NJSGC requirement specifies that an employee be given the option to continue coverage when:

  • the employee is terminated for reasons other than cause;
  • the employee’s hours are reduced, causing him or her to be ineligible for the small group coverage; or
  • the employee ends employment.

An employee is entitled to continue the coverage he or she had immediately prior to his or her ineligibility, including covering dependents who were covered prior to the employee’s ineligibility.  An employee is entitled to continue coverage for 18 months, unless he or she is disabled within 60 days after the qualifying event, in which case, he or she may continue coverage for 29 months.  The determination of disability is made by the Social Security Administration.

 
Dependents, Qualifying Events and Duration of Continued Coverage

The NJSGC only specifies that a covered spouse, civil union partner or domestic partner be given the independent option to continue coverage when he or she would otherwise lose eligibility for coverage because of:
  • Death of the covered employee; or
  • Divorce or other legal action that results in termination of the marriage, or dissolution of the civil union or domestic partnership with the covered employee.

The NJSGC only specifies that a covered child dependent be given the independent option to continue coverage because of:

  • Death of the covered employee;
  • Divorce or other legal action that results in termination of the marriage, or dissolution of the civil union or domestic partnership with the covered employee; or
  • The child ceases to be an eligible dependent (for instance, because s/he marries or attains the policy’s limiting age for dependent children).

When a dependent makes a continuation election, he or she is entitled to continue coverage for up to 36 months.

 
Limits on the Duration of Coverage

Continued coverage pursuant to NJSGC may end earlier than the prescribed continuation period if:
  • the employer ceases to offer any health benefits plan;
  • the covered person fails to make appropriate payment (subject to a 31-day grace period);
  • the covered person becomes covered under another health benefits plan that applies no pre-existing condition limitation to the covered person and anyone else under the continued health benefits plan; or
  • the covered person becomes entitled to Medicare.
 
Employer’s Obligation

Employers have a legal obligation 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 employer has an obligation to remit the premium paid to the employer by the employee/former employee or dependent on continuation as part of the employer’s regular premium payment.  In other words, the employer is obligated to serve as a conduit for the premium payment to the carrier.  However, employers are not required to contribute to the premium or otherwise “front” the money for the employee.
 
Continuation in the Event of Total Disability

New Jersey law (N.J.S.A. 17B:27-51.12 and N.J.S.A. 17:48E-32) requires that when a covered employee terminates employment due to total disability, the employee may continue coverage (including coverage for his or her dependents) under the group’s health benefits plan.  The employee must have been covered under the health benefits plan at least three months prior to termination of employment.  The employee may be required to pay the group rate for the continued coverage.  An election must be made within 31 days after the date the coverage would otherwise terminate.  An employee’s eligibility for Medicare does not limit the right to continue coverage under the group health benefits plan.


Under this election, continued coverage will end:
  • for the employee and any covered dependents if the employee fails to pay the required premium
  • for the employee and any covered dependents when the employee is again employed and eligible for another group health plan
  • for a dependent when that dependent stops being an eligible dependent or becomes eligible for another group health plan
  • for the employee and any covered dependents if the employer ceases to offer a group health benefits plan to all employees.
In the event the employer replaces the group health benefits plan with another such plan, the disabled employee has the right to become covered under the replacement group health benefits plan.

Please Note:
All small employer health benefits plans have terms and conditions that address this New Jersey continuation requirement, including those offered by HMOs.  However, in the larger group market, New Jersey law does not require HMO’s to provide continuation coverage specifically for termination due to total disability. 
 
 
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