Does My Organization Need to Comply with State Continuation?

Whether your organization must comply with state continuation depends largely on where your insurance plans are written and what type of organization you run. For instance, certain types of organizations, like church plans, are often exempt from state continuation requirements. Self-funded plans, while subject to COBRA, are typically exempt from state continuation laws because they are not governed by state insurance mandates. However, this adds a layer of complexity when an employer offers both fully-insured and self-funded plans.

Imagine a scenario where your organization offers a fully-insured medical plan alongside a self-funded dental plan. The medical plan may be subject to state continuation, while the dental plan would only follow COBRA rules. It’s essential to differentiate between the two to ensure compliance with both sets of laws.

For employers not exempt from state continuation, the obligations may depend on whether your plans are written in one of the states that mandates state continuation. In some cases, employers might even need to comply with the laws of the states where employees reside, even if those employees work in a different state. The following states have enacted state continuation laws:

It’s important to keep in mind that other states may add continuation laws in the future, and some are already considering changes to their policies. For this reason, it's crucial to stay updated on state legislation that may affect your organization's compliance obligations.

What is the difference between COBRA and State Continuation?

Though COBRA and state continuation serve the same purpose—ensuring continued coverage after a qualifying event—their rules differ significantly. Below are key areas where COBRA and state continuation diverge.

1. Employer Compliance Requirements

COBRA applies to employers with 20 or more employees in the previous calendar year. By contrast, state continuation laws vary significantly from state to state. Some states require all employers offering a group policy, regardless of size, to comply with state continuation laws. For example, while COBRA’s employee threshold may exempt small businesses, many state laws do not offer this exemption, requiring small employers to comply regardless of workforce size.

2. Participant Eligibility

Eligibility for continuation under COBRA is broad, allowing employees to continue coverage even if they were insured for only one day before a qualifying event. However, under state continuation, some states impose stricter eligibility requirements. For example, in certain states, employees may only be eligible for continuation if they were enrolled in coverage for a minimum of three to six months prior to the qualifying event. This creates an additional layer of complexity, as employers must carefully monitor participant eligibility to ensure they meet the necessary requirements.

3. Qualifying Events

Under COBRA, the most common qualifying event is the termination of employment, whether voluntary or involuntary, unless exceptions apply. COBRA also covers a broad range of other events, such as a reduction in hours, retirement or a leave of absence due to military service. Dependent coverage is protected as well when an employee passes away, divorces their spouse or when a dependent ages out of coverage.

State continuation laws, however, can be far more limited. Some states only allow continuation for certain types of events, while others add unique events not covered by COBRA. For instance, while COBRA consistently covers retirement or death of the employee, each state decides which qualifying event(s) will trigger a requirement to offer continuation.

4. Continuable Benefits

COBRA generally requires that participants be allowed to continue their core health benefits, including health, pharmacy, dental, and vision plans. Additionally, benefits like employee assistance programs (EAP) and telehealth services may be eligible for continuation depending on the plan’s design. Healthcare flexible spending accounts (FSAs) are also typically continuable under COBRA.

State continuation laws vary by state and may offer a broader or narrower range of benefits that can be continued. For example, some states require continuation of group life insurance or long-term care insurance—benefits that are not covered by COBRA. This means that if you operate in a state with more expansive state continuation laws, your organization may have to offer continuation for additional benefits beyond those required under COBRA.

5. Notice and Timelines

COBRA mandates that most employers provide participants with notice of their continuation rights within 14 days (or up to 44 days in certain situations) of a qualifying event. However, state continuation laws often impose stricter timelines, with some states requiring that notices be sent within 10 days or even shorter periods.

Failure to provide timely notice can result in significant penalties, making it crucial for employers to understand the deadlines under both COBRA and applicable state laws.

6. Duration of Coverage

COBRA allows for 18 months of continued coverage in cases of employment termination or reduction of hours, with a potential extension to 36 months for events affecting dependents, such as divorce or death. State continuation laws set their own maximum coverage periods, which can range from a few months to several years. For example, while COBRA’s maximum coverage for employment termination is 18 months, some states may allow for shorter or longer periods, depending on the qualifying event.

When Both COBRA and State Continuation Apply

There are instances where your organization may need to comply with both federal COBRA and state continuation laws. This typically happens when both sets of laws apply to your plans, and in such cases, you’ll typically need to provide the more generous option to your participants. For example, if a state continuation law allows for a longer duration of coverage than COBRA, you would generally follow the state law. Understanding when and how both sets of laws apply is critical to ensuring compliance and avoiding penalties.

Choosing the Right Administrator for COBRA and State Continuation

Navigating the complexities of COBRA and state continuation can be a daunting task. Failing to comply with these laws can lead to costly penalties, making it essential to have the right support. Partnering with an experienced third-party administrator can simplify the process and help you stay compliant.

When selecting an administrator, prioritize their knowledge of both COBRA and state continuation laws. Your administrator should be able to help you navigate the unique requirements in the states where your plans are written. Additionally, look for an administrator with a strong track record of compliance and customer service. They should not only be able to answer your questions but also assist former plan participants with their inquiries.

Outsourcing these responsibilities can save your organization time, reduce risk, and help ensure that all compliance obligations are met. For more information or to explore how we can assist, contact our sales team at 800-991-7703 or BenefitsConnectionSales@AssociatedBank.com.

By understanding and complying with both COBRA and state continuation requirements, you can safeguard your organization and ensure continued coverage for your employees when they need it most.