Historically, many of Arizona’s smaller employers have never had to be concerned with COBRA compliance because it does not apply to employers with fewer than 20 employees. In the years since COBRA became law in 1985, most states have adopted what are commonly referred to as “Mini COBRA” laws. Those laws require employers with fewer than 20 employees to allow plan enrollees to continue coverage at the enrollee’s own expense under the employer’s plan when they would otherwise lose coverage due to a “Qualifying Event.” Those events include such things as loss of employment (for reasons other than gross misconduct), divorce or separation from the enrollee, or death of the enrollee. In 2018, Arizona became the latest state to adopt a Mini COBRA law.
Arizona’s Mini COBRA law (codified as A.R.S. § 20-2330) requires employers who have a health plan and who averaged between one and twenty employees during the prior calendar year to allow enrollees to continue coverage. To be eligible, the person had to have been enrolled in the plan for 90 days prior to their Qualifying Event. The law applies to health plans issued or renewed after December 31, 2018. That means that if the plan year begins on January 1, the employer would have to offer “Mini COBRA” to eligible enrollees who have a Qualifying Event on or after January 1, 2019. Plans that have a plan year beginning other than January 1 have some additional time to comply.
Employers subject to this law must issue a notice to enrollees within 30 days of a Qualifying Event informing them of:
- their right to continue coverage at the full cost of the premium plus an additional 5% administration fee;
- the full cost for the enrollee and his or her qualified dependents to have such coverage;
- the deadline for the enrollee to elect continuation coverage;
- the deadline for the enrollee to submit the initial and ongoing payments to the employer;
- how the enrollee can lose coverage if the enrollee fails to pay premiums and the administrative fee; and
- other information specified by law.
The Arizona Department of Insurance is required to prepare and provide a model notice, and if employers timely use the model notice, they will be deemed to be in compliance with the notice requirement. This model notice will be on the Department’s website soon (https://insurance.az.gov).
Enrollees must elect continuation coverage within 60 days after the date of the notice. Within 45 days of electing continuation coverage, the enrollee must submit the first premium payment and the 5% administrative fee. This timeline means that an employer may be obligated to pay premiums for the enrollee’s coverage in advance and get reimbursed. Although the law imposes this and other administrative burdens on small employers, the allowable 5% administrative fee is intended to compensate small employers for such burdens. COBRA only allows for a 2% administrative fee on top of the full premium.
Much like COBRA, continuation coverage under Arizona’s Mini COBRA law may continue for up to 18 months and may extend for an additional 11 months when there is a disability. Continuation coverage terminates when this allowable period ends but will end sooner if the enrollee fails to pay premiums, becomes eligible for Medicare, Medicaid or obtains other health coverage, when the employer terminates the plan, or when other events specified in the law occur.
Small employers should also be aware they may be subject to COBRA rather than Mini COBRA. COBRA applies to employers that had at least 20 employees on more than fifty percent of its typical business days during the prior calendar year. So, a company that increases its workforce beyond twenty employees in one year may be subject to COBRA the following year. Also, companies that are related to each other through common ownership are treated as a single employer for COBRA purposes. Thus, a company may have fewer than twenty employees but if it is related by common ownership to another company, and the combined number of employees exceeds twenty, both companies would be subject to COBRA rather than Mini COBRA.
While COBRA includes significant penalties for failing to provide COBRA eligibility notices (up to $110 per day), there are no penalties set forth in Arizona’s Mini COBRA law for noncompliance. Such penalties may eventually be added to the Arizona Administrative Code and it is possible that affected enrollees could bring legal claims against an employer for noncompliance. For these reasons, small employers who provide health coverage to their employees should look for the model notice from the Arizona Department of Insurance and prepare to comply with Arizona’s Mini COBRA law beginning in 2019.