On June 10, Governor Edward G. Rendell signed into law four bills, each relating to significant health care initiatives.   The new laws

  • introduce COBRA-like requirements for small employers;
  • extend the availability of health insurance coverage to certain older children;
  • prohibit health care providers from seeking reimbursement for certain preventable medical errors; and 
  • reauthorize the Pennsylvania Health Care Cost Containment Council (PHC4).

Except for the "mini-COBRA law," each of these measures was proposed as part of the health care reforms in the Governor's Prescription for Pennsylvania.

Pennsylvania   Mini-COBRA

Pennsylvania has joined the ranks of states with "mini-COBRA" laws. These laws require insurers to make COBRA-like continuation of health care coverage available under health plans maintained by employers who are too small to be subject to the federal COBRA rules. 

Comparison to COBRA.  The continuation of coverage rules under COBRA do not apply to plans maintained by employers with fewer than 20 employees. Pennsylvania's mini-COBRA law reaches insured group health plans, including HMOs, maintained by employers with as few as two and as many as 19 employees. As in COBRA, the determination of an employer's size is measured by reference to the typical business day during the preceding year.

Pennsylvania mini-COBRA sets forth rules for small employers that mirror the rules under COBRA in many respects, but differ in others. For example:

  • The plans that are subject to the Pennsylvania rules include hospital, surgical, and major medical policies, but exclude certain programs that would be covered by COBRA, including dental and vision plans. 
  • The qualifying events that cause a loss of coverage are the same as those under COBRA[1], and the classes of individuals who may continue coverage follow the COBRA rules. As a result, employees (including self-employed individuals such as partners), spouses, and dependent children may all qualify for continued health coverage under mini-COBRA. However, where COBRA requires those individuals to be covered only one day before the qualifying event occurs, mini-COBRA requires three months of continuous coverage.
  • Under Pennsylvania mini-COBRA, coverage may be continued for a maximum of nine months and will end if the individual is eligible for Medicare or group hospital, surgical, or major medical coverage, whether or not he or she actually enrolls for that coverage. An individual’s continuation coverage under mini-COBRA will also end upon a failure to verify that he or she is not eligible for employer-based health insurance as a dependent. COBRA allows continuation coverage for up to 18 months for some qualifying events and 36 months for others. This coverage may be cut short in circumstances where an individual actually becomes covered under Medicare or another group plan. 
  •  Pennsylvania mini-COBRA imposes notice obligations that differ in some respects from those under COBRA. Under mini-COBRA, insurers will bear certain responsibilities for notifying employees. For example, the insurer needs to inform employees of their rights under the new law. Employers will need to notify the plan administrator (or its designee), the covered employee, and the insurer within 30 days of any qualifying event. The employee has 30 days to elect continuation coverage by notifying the administrator (or its designee). The administrator (or its designee) has 14 days to notify the insurer of the election.  An employer will be regarded as the administrator unless someone else is designated and may seek to take reasonable measures to ease its notice obligations. For example, an employer may make sure that employees know to inform it about certain qualifying events, such as divorce, and seek to place its insurer in the role of administrator (or the administrator's designee).

Cost of Continued Coverage.  The extension of coverage for only nine months and, to a great extent, the termination of coverage on eligibility for Medicare or other group medical coverage, reflect the fact that the Pennsylvania mini-COBRA law arose not as part of the Prescription for Pennsylvania proposals, but as a response to the COBRA subsidy provisions included in the American Recovery and Reinvestment Act of 2009 (ARRA). ARRA provides an individual who loses group health coverage on account of an involuntary termination of employment the opportunity to continue coverage under either COBRA or a state mini-COBRA law at a reduced, federally subsidized rate for up to nine months. The subsidy ends if the individual is eligible for Medicare or other group health coverage. The Pennsylvania mini-COBRA rules allow employees of small employers who are involuntarily terminated to take advantage of these reduced COBRA rates.

These subsidy rules will be in effect for only a limited time. Unless the ARRA provisions are extended, the termination of employment must occur and continuation of coverage must begin before January 1, 2010. Pennsylvania mini-COBRA will continue in effect for qualifying events that occur after this year, but without the reduction in rates for those who are involuntarily terminated.

Payment for continuation coverage under Pennsylvania mini-COBRA must be made on a monthly basis, and premiums may not ordinarily exceed 105 percent of the group rate for coverage.  If premium assistance under ARRA applies, employees need to pay only 35 percent of the ordinary rate. 

A covered employee may convert coverage to an individual policy at the expiration of Pennsylvania mini-COBRA. The cost and coverage under an individual policy may differ from that of COBRA.

Effective Date.  The Pennsylvania mini-COBRA rules take effect July 10, 2009. The rules do not include all of the detail included in the COBRA rules, and it will be worth looking for guidance to determine if relevant details are to be interpreted in a manner similar to the COBRA rules.

Extended Coverage For Adult Dependents

Following the lead of New Jersey and certain other states, Pennsylvania has enacted a law requiring health insurance policies, including HMOs, that are issued or renewed in the commonwealth to make extended coverage available for the children of insured employees beyond the limiting age specified in the plan. This coverage may be extended until the child's 30th birthday. 

To qualify for extended coverage under the new law, the child must be a Pennsylvania resident or a full-time student and may not

  • be married;
  • have dependents of his or her own; or
  • have coverage under any other group or individual health insurance policy or government health care benefits program (including Medicare).

This new requirement applies to group health insurance only, but does not apply to certain other specified arrangements, including: individual health insurance policies, specified disease arrangements, and dental, vision, long term care, and Medicare supplement plans. 

The insured employee may be assessed an additional premium for the coverage provided to older dependents. The insurer is given discretion in determining the premium for this coverage.

The new law leaves several questions unanswered. These issues will be addressed as insurers begin to make this extension of coverage available, perhaps with guidance from the Pennsylvania Department of Insurance. An announcement by the Governor's Office that accompanied the legislation confirms one very significant aspect of the new law. Although insurers are required to make this extension of coverage available in applicable group health insurance policies, employers have the discretion to choose whether or not to include the extension in their plans. Employers should be mindful of this choice at renewal.

Policies issued or renewed in the commonwealth 180 days or more after enactment (December 7, 2009) will be subject to the extension requirements. As a result, calendar year renewals will be subject to the new law. 

Preventable Medical Errors

The Preventable Serious Adverse Events Act prohibits health care providers from knowingly seeking payment for certain preventable serious adverse events and the services required to correct them when the event occurred under their control. If a provider discovers that such payment has unknowingly been sought, the provider must immediately notify the insurer (or other health payor) or the patient and promptly refund any payments the provider receives. If a health payor discovers that a health care provider had sought payment for a preventable serious adverse event or its correction, the payor should not make the payment and should notify the health care provider that such payment may not be sought.

A "preventable serious adverse event" is an event that occurs in a health care facility or nursing facility, that

  • is within the health care provider's control to avoid;
  • occurs because of an error or other system failure; and
  • results in the patient's death, loss of a body part, disfigurement, disability, or loss of bodily function that lasts more than seven days or is still present at the time of discharge from a health care facility. 

The events will be included in the list of reportable serious adverse events adopted by the National Quality Forum or in a preventable serious adverse events bulletin for nursing facilities. This bulletin is a new publication to be prepared by the Department of Public Welfare.

The commonwealth will investigate complaints about providers who seek payments that are not permitted under the new law. 

Health care payers and providers may establish contractual policies and procedures to implement the new requirements. Health care providers are subject to certain reporting requirements. 

Medicare has its own rules about payment for these types of events. To the extent that Medicare is involved as the health payor in these circumstances, the new law's provisions will not supersede Medicare payment policies and determinations. 

Most of the provisions in the new law take effect August 9, 2009. The rules for the new bulletin on nursing facilities will not take effect until June 10, 2010. 

Pennsylvania Health Care Cost Containment Council

The Pennsylvania Health Care Cost Containment Act (PHC4) reauthorizes the Health Care Cost Containment Council. The Council is charged with promoting health care cost containment and identifying appropriate utilization practices. The Council aims to collect and publish current, accurate data and information on both cost and quality. The data is available for use by patients, plans, providers, and policymakers. 

PHC4 has been operating by executive order since its legislative authority expired last year. The reauthorization is generally retroactive to the date it expired and extends until June 30, 2014.

If you have questions about any of the topics covered in this alert, please feel free to contact Edward I. Leeds (215.864.8419 or leeds@ballardspahr.com), or any other member of Ballard Spahr's Employee Benefits and Executive Compensation Group.

[1]  The following occurrences are qualifying events under both COBRA and Pennsylvania mini-COBRA if they result in a loss of coverage under the plan:
  • Termination of employment (other than for reasons of gross misconduct)
  • Reduction in hours of a covered employee
  • Death of a covered employee
  • Divorce or legal separation from a covered employee
  •  A covered employee's entitlement to Medicare
  • A dependent child's ceasing to be a dependent under generally applicable provisions of the plan
  • Bankruptcy of the employer under Title 11

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This newsletter is a periodic publication of Ballard Spahr LLP and is intended to alert the recipients to new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer concerning your situation and specific legal questions you have.