California Repeals Senior COBRA Program

On June 23, 2004, Governor Schwarzenegger signed into law legislation repealing the Senior COBRA program in California. After January 1, 2005, terminating employees and their spouses will not be able to extend their health care coverage through Senior COBRA once federal or Cal-COBRA is exhausted. Older workers may instead be eligible for guaranteed individual health care coverage under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”).

Senior COBRA at a Glance

Senior COBRA, codified at California Health and Safety Code section 1373.621 and California Insurance Code section 10116.5, currently provides former employees, their spouses, and former spouses rights to continued medical coverage after federal or Cal-COBRA coverage ends. The cost to the terminating employee cannot exceed 213% of the regular premium. To qualify for Senior COBRA, a terminating employee must:

  • be age 60 or older when employment ends;
  • have worked at least five continuous years with the same employer immediately preceding enrollment in COBRA or Cal-COBRA;
  • be covered under a fully insured health plan; and
  • have exhausted federal and/or Cal-COBRA benefits.

Only eligible employees who meet these requirements before January 1, 2005 may obtain Senior COBRA coverage in California. Senior COBRA continues for five years, or until the earliest of the following events occurs:

  • the individual turns age 65 or otherwise becomes entitled to Medicare;
  • the individual is covered by a group medical plan;
  • not sponsored by the employer; or
  • the employer no longer maintains the group plan.

AB 254: The End of Senior COBRA

Congress passed HIPAA on August 21, 1996. Under HIPAA?s individual market rules states had two options: (1) follow the federal provisions or, (2) implement an alternative mechanism to provide individuals with coverage at least comparable to HIPAA?s. California enacted legislation in 2000, effective the following year, Page 3 ? August 2004 conforming to HIPAA?s individual market reforms. After the HIPAA portability rules were adopted, concern developed that health care costs under Senior COBRA, which was enacted prior to HIPAA, could be greater than those under HIPAA. However, because older workers were required to use up all COBRA and Cal-COBRA coverage before becoming eligible for HIPAA, older employees in California had no choice but to elect and exhaust Senior COBRA first.

The California State Assembly passed AB 254 in an effort to provide retirees with affordable continuation coverage during the transition between retirement and eligibility for Medicare. The bill?s goal in eliminating Senior COBRA coverage was to give qualifying individuals the same “guaranteed issue” rights under HIPAA in the individual market as other Californians, so the elderly could access more affordable health insurance. Beginning in 2005, seniors leaving their jobs must only use up COBRA and/or Cal-COBRA, not the potentially longer Senior COBRA, before becoming eligible for health insurance under HIPAA.

HIPAA “Guaranteed Issue”

HIPAA includes specific protections for employees leaving their jobs or changing jobs by requiring insurers to offer policies to individuals who are not eligible for COBRA, or have already exhausted their COBRA coverage. HIPAA requires all health insurance issuers offering coverage to individuals to accept any “federally eligible individuals” who apply for coverage. A federally eligible individual:

  • Has had 18 or more months of continuous creditable coverage, at least the last day of which was under a group health plan;
  • Has exhausted any COBRA and/or Cal-COBRA coverage continuation rights;
  • Is not eligible for Medicare, Medicaid or a group health plan;
  • Does not have other health insurance;
  • Must apply for health insurance for which he or she is federally eligible within 63 days of losing prior coverage; and
  • Must not have had their most recent health care coverage terminated because of fraud or nonpayment of premiums.

Under HIPAA, a health insurance issuer cannot reject an individual?s application if the individual is federally eligible, agrees to pay the required premiums and lives inside the health plan?s service area. An eligible individual does not need to show evidence of insurability, and cannot be excluded from health coverage due to pre-existing conditions. Coverage must be renewed at the individual?s option unless he or she does not pay the required premiums, commits fraud or misrepresentation, moves out of the plan?s service area, or the health plan withdraws from the individual health plan market.

HIPAA?s guaranteed availability requirements do not apply in a state that implements an alternative mechanism which provides federally eligible individuals access to individual health insurance without preexisting condition exclusions. The majority of states, including California, currently implement alternative mechanisms.

California’s Alternative Mechanism

California Health and Safety Code section 1366.35 and California Insurance Code section 10785 guarantee federally eligible individuals the right to buy coverage from any insurer selling individual coverage. Insurers may limit an individual?s choices to two policies — either the insurer?s two most popular policies or two representative policies. An insurer offering two representative policies must provide a selection of a policy with a high benefit package and one with a low benefit package. If a person does not meet the federally eligible individual definition, insurers have the right to turn him or her down due to health status or other factors.

California legislation regulates HIPAA coverage and rates. For health care service plan contracts offered through an HMO or a non-PPO health insurer, federally eligible individuals between the ages of 60 to 64 cannot be charged more than 170% of the standard premium charged to an individual who is 59 years of age and resides in the same geographic area. Carriers are also limited to one rate increase per year.

Similar rate protection extends to individuals covered under conversion coverage mandated by the Knox-Keene Health Care Service Plan Act of 1975, California Health and Safety Code sections 1373.1, 1373.2, and 1373.6, and California Insurance Code section 10126. Generally, individuals who lose group health care coverage have the right to continue their coverage with the same insurer under an individual plan after they have exhausted COBRA and Cal-COBRA. Individuals must elect conversion coverage within 63 days of the date their COBRA or Cal-COBRA coverage ended. A health plan may deny an individual application if the individual?s coverage under the group contract was less than three months, or if the individual is already covered by or eligible for Medicare. Individual Conversion Coverage offers special protections so that individuals do not need to show evidence of insurability, and cannot be excluded due to pre-existing conditions exclusions.

For further information, Georgetown University Health Policy Institute?s “A Consumer?s Guide to Getting and Keeping Health Insurance,” www.healthinsurance provides a summary of consumer rights and protections in all 50 states.