Group health insurance and COBRA

How group health insurance works

Group health insurance covers a group of people under one master policy issued to a group policyholder, such as an employer, a labor union or an association (Fla. Stat. § 627.652(1)). The policyholder owns and administers the contract. Each insured member receives a certificate of insurance that describes the coverage but is not a separate contract. In Florida the same rules reach self-insured employer plans: "group health insurance policy" includes a plan of self-insurance, and "insurer" includes the employer or governmental unit that self-insures (§ 627.652(2)).

Key features that set group coverage apart from individual coverage:

• Group underwriting. The insurer underwrites the group as a whole, looking at its size,

age mix, industry and claims history, rather than asking each member for evidence of insurability.

• Eligibility and participation. Members must belong to the group for a reason other than

buying insurance, such as employment. A noncontributory plan, where the employer pays the whole premium, normally requires all eligible employees to enroll. A contributory plan, where employees pay part, requires a minimum percentage to enroll so that healthy members do not opt out and leave only high-risk members (adverse selection).

• Rating. Large groups are usually experience rated on their own claims. Small groups

are pooled and rated on a community or modified community basis.

• Tax treatment. Premiums an employer pays for employee health coverage are generally a

deductible business expense for the employer and are not taxable income to the employee.

• Renewability. Small employer health benefit plans are renewable for all eligible

employees and dependents (§ 627.6699(7)).

A group policy issued in another state that covers Florida residents generally must comply with Florida's group health law, unless it fits a recognized group type, gives Florida certificate holders a prominent notice that another state's law governs, and provides specified Florida-mandated benefits (§ 627.6515).

When group coverage ends: conversion and continuation

A member who leaves the group loses coverage. Two protections soften that loss:

• Conversion privilege. The member may convert to an individual policy from the group

insurer, without evidence of insurability, by applying and paying the first premium within a limited period after group coverage ends. The converted policy usually costs more and may offer fewer benefits.

• Continuation of the same group coverage, required by federal COBRA for larger

employers and by Florida law for smaller ones.

COBRA

COBRA is the Consolidated Omnibus Budget Reconciliation Act of 1985. The sponsor of each group health plan must let every qualified beneficiary who would lose coverage because of a qualifying event elect to continue coverage under the plan (29 U.S.C. § 1161(a)). The rule does not apply to a plan whose employers normally employed fewer than 20 employees on a typical business day in the preceding calendar year (§ 1161(b)).

Who is protected. A qualified beneficiary is anyone covered on the day before the qualifying event as the spouse or dependent child of the covered employee, and a child born to or placed for adoption with the employee during continuation also qualifies. For termination of employment or reduced hours, the covered employee is a qualified beneficiary too (26 U.S.C. § 4980B(g)(1)).

How long it lasts depends on the qualifying event:

• 18 months: the employee's termination of employment for any reason other than gross

misconduct, or a reduction in hours that ends eligibility.

• 29 months: the 18-month period extended by 11 months when a qualified beneficiary is

determined by the Social Security Administration to have been disabled at the time of the qualifying event.

• 36 months: for the spouse and dependents, when the event is the employee's death,

divorce or legal separation, the employee becoming entitled to Medicare, or a child ceasing to be a dependent under the plan.

Cost. The plan may charge the beneficiary up to 102% of the full group premium, the employer's and employee's shares together plus a 2% administrative charge, and up to 150% during a disability extension. The employer is not required to keep paying its share.

Notices and election. The employer tells the plan administrator of a termination, reduced hours, death or Medicare entitlement within 30 days. The employee or family must tell the administrator of a divorce, legal separation or a child losing dependent status within 60 days. The administrator then notifies the qualified beneficiaries within 14 days, and a notice to the spouse counts as notice to everyone living with the spouse (§ 4980B(f)(6)). Each qualified beneficiary has at least 60 days to elect continuation, and coverage elected in time is retroactive to the date it was lost.

Early end. Continuation can stop before the maximum period if premiums are not paid on time, the employer stops offering any group health plan, or the beneficiary becomes covered under another group plan or becomes entitled to Medicare.

The federal tax code backs COBRA with an excise tax on plans that fail these continuation requirements (26 U.S.C. § 4980B).

Florida continuation for small employers

The Florida Health Insurance Coverage Continuation Act, often called Florida "mini-COBRA," extends continuation rights to employees of small employers and their dependents who are not protected by federal COBRA (§ 627.6692(2)). It does not apply where continuation is available under federal COBRA (§ 627.6692(3)). A covered employee terminated for gross misconduct is not a qualified beneficiary, and the employer's decision on gross misconduct is conclusive for the carrier (§ 627.6692(4)(f)). The Florida act ends continuation early for reasons that mirror COBRA's, and it allows a disabled qualified beneficiary an extra 11 months, 29 months in all, at up to 150% of the group rate (§ 627.6692).