Pennsylvania has adopted a "Mini-COBRA" law effective for losses of group health insurance coverage that occurred on or after July 10. The Mini-COBRA provision requires that eligible employees of small employers (from two to 19 employees) be given the opportunity to purchase continuation coverage for themselves and their dependents for a period of up to nine months.

The new rules apply to fully insured group medical, hospital or surgical plans. Employers may charge up to 105 percent of the group rate for the insurance. Eligible individuals include employees and their dependents who were continuously insured under the employer's group policy for three months ending with the qualifying event.

Continuation coverage is not available to anyone who is covered or eligible for coverage under Medicare; who fails to verify that he is ineligible for employer group coverage as an eligible dependent; or who is or could be covered by another group health arrangement under which the person was not covered immediately prior to the qualifying event. Individuals who become eligible for Mini-COBRA as a result of an employee's termination of employment that occurs on or after July 10, 2009 and prior to January 1, 2010, will receive the 65 percent premium subsidy provided under the American Recovery and Reinvestment Act of 2009.Small employers will not have to fund the premium assistance amounts; rather, the insurer will get a federal tax credit for the 65 percent portion of the premium that the covered individual does not pay.

Employers are required to provide notice to eligible individuals within 30 days after a qualifying event, and those individuals then have 30 days to elect coverage. A model notice can be found at www.ins.state.pa.us.

Small employers with insured health plans in Pennsylvania should coordinate with their insurance providers to ensure compliance with the new law.

-- Lauren B. Licastro,
Morgan Lewis & Bockius LLP
llicastro@morganlewis.com

The Internal Revenue Service just announced severe penalties for employees who involuntarily lose their jobs and accept a COBRA subsidy without adhering to strict eligibility requirements.

The American Recovery & Reinvestment Act of 2009 enables employees who have lost their jobs through no fault of their own to maintain health care coverage under COBRA subsidized by the former employer and the federal government. But if people who do not qualify take the subsidy, not only will they have to pay back the full amount of the subsidy, but they also will be assessed a 10 percent penalty.

According to the IRS regulations on the COBRA subsidy, no one is eligible who can be covered by another health care plan. What that means is that the IRS will penalize taxpayers who have been laid off and decided to take the COBRA subsidy, if they later continue the subsidy in a new job instead of taking the health care plan offered by the new employer.

Employers who offer health care insurance and intend to hire should make special efforts to communicate the penalty to new employees. Otherwise, an uninformed employee might decide to continue getting the subsidized insurance thinking that it's less expensive than the new company's plan.

-- Herb Wolfson,
Wittlin, Simon & Newman,
wsnpc@msn.com