State and federal laws can sometimes appear to conflict with each other. For example, both federal laws and state laws set requirements for COBRA health insurance continuation. As a third-party administrator or HR pro, you may be wondering with laws are more important: federal COBRA or state continuation? In this case, it’s not a matter of either/or. It’s a matter of both/and.
COBRA versus State Continuation Laws
Federal COBRA and state continuation laws tend to be similar, but there are important differences that employers need to pay attention to. For example:
- Federal COBRA applies to employers with 20 or more employees. State continuation laws often apply to smaller companies.
- Federal COBRA applies to group health insurance, including medical, dental and vision. State continuation laws may or may not apply to dental and vision care.
- Federal COBRA requires coverage to be made available for 18 months when the qualifying event is termination or reduction of hours. This period can be extended by 11 months due to disability or by 18 months due to a second qualifying event. For other qualifying events, coverage must be made available for 36 months. State COBRA laws may establish longer or shorter coverage periods.
- Federal COBRA allows employers to charge beneficiaries 100 percent of the premium plus a 2 percent administrative fee. State continuation laws may establish different administrative fees.
- State continuation laws are constantly changing. Most states have passed continuation laws over the years. With 50 states, there are a lot of laws to keep up with. For example, Arizona’s new state continuation just went into effect in 2019.
Which Law Applies to Your Company?
State continuation laws extend, rather than replace, federal COBRA laws. This means that your company should adhere to both federal and state requirements. However, knowing which laws apply at any given time is important.
For example, imagine that your state has a continuation law that applies to employers with fewer than 20 employees and allows a 5 percent administrative fee. Keep in mind that federal COBRA rules only allow a 2 percent administrative fee. If your company has 20 or more employees, the federal law applies to you, and you can only charge a 2 percent fee. If you have fewer than 20 employees, the federal law does not apply to you, but the state law does, so you still need to offer continuation coverage, but you can charge a 5 percent fee.
To determine whether federal, state, or both laws apply to your company, it’s typically important to consider the following two issues:
- Company Size: Make sure you’re calculating your employee number correctly. Federal COBRA laws apply to employers with 20 or more employees on more than 50 percent of typical business days in the previous calendar year, and part-time employees are calculated as a fraction.
- Duration of Coverage: State laws may require a different period of coverage. For example, after termination, and assuming no federal extensions apply, you only have to offer 18 months of coverage under federal laws. However, your state’s laws may require a longer period of coverage.
Thankfully, Travisoft COBRA administration clients have some help in staying compliant as our system helps manage both state and federal COBRA. If you’re not using Travisoft COBRA administration automation, request a demo today.