OGC Opinion No. 03-01-30: Comprehensive Omnibus Budget Reconciliation Act of 1986 (COBRA) & Billing

OGC Op. No. 03-01-30

The Office of General Counsel issued the following opinion on January 14, 2003, representing the position of the New York State Insurance Department.

Re: Comprehensive Omnibus Budget Reconciliation Act of 1986 (COBRA) & Billing

Question Presented:

May an insurer or insurance agent require that an employer remit payments 60 days in advance of the premium due date for continuation coverage of a former employee?

Conclusion:

As a Federal statute, COBRA is primarily governed by Federal statutes and regulations. However, in so far as insurance policies and contracts are concerned under the New York Insurance Law (McKinney 2000 and 2003 Supplement), the payment terms are set forth in the insurance policy or contract issued by the insurer and may not be modified by the insurance agent. The insurer may not require earlier payment for a former employee under COBRA than it requires for active employees. However, where the policyholder, here the trust of which your firm is a member, aggregates premiums from a number of employers, such policyholder may impose reasonable additional requirements.

Facts:

A firm (the "Firm") has contracted for health insurance through Agent A. The firm participates in a trust organized by Agent A that has purchased a health insurance contract. Agent A has required the Firm to remit premium payments to it 60 days prior to the date that the premiums are due to the insurer. The inquiry questions the legality and fairness of requiring the Firm to make such advance payments because the former employee is not required to make such advance payments to the Firm.

Analysis:

Agent A is a subsidiary of Company B, and is licensed by this Department as an insurance agent pursuant to Insurance Law § 2103(a). Agent A represents that it "provides small business owners in New York State with the information, employee benefit program products, and services to help their business succeed" and that in excess of 40,000 individuals are covered under its programs. Accordingly, it is assumed that the insurance contract is issued to the trust organized by Agent A by a Company B entity and complies with New York Insurance Law § 4235(c)(1)(K) (McKinney 2000 and 2003 Supplement), which authorizes:

A policy issued to an association or the trustee or trustees of a trust established, or participated in, by one or more associations, to insure association members, subject to the following: (i) Each association shall have: (I) A minimum of two hundred insured members at the policy's date of issue; (II) Been organized and maintained in good faith for purposes principally other than that of obtaining insurance; (III) Been in active existence for at least two years; and (IV) A constitution and by-laws which provide that: . . . (cc) The members have voting privileges and representation on the governing board and committees. (ii) The premium for the policy shall be paid by the association or the trustees either wholly from funds contributed by the association or by the insured individuals, or from funds contributed jointly by the association and insured individuals. . . . (iii) The amount of insurance under the policy shall be based upon some plan precluding individual selection either by the insured members or by the association. . . .

COBRA, Pub. L. No. 99-272 requires that group health plans provide continuation coverage upon the occurrence of specified qualifying events. This requirement has been codified as part of the Employee Retirement Income Security Act (ERISA) at 29 U.S.C.A. §1161 et seq. (West 2000).

The required continuation coverage is specified in 29 U.S.C.A. §1162, which provides in pertinent part:

The term continuation coverage means coverage under the plan which meets the following requirements: (1) Type of benefit coverage. The coverage must consist of coverage which, as of the time the coverage is being provided, is identical to the coverage provided under the plan to similarly situated beneficiaries under the plan with respect to whom a qualifying event has not occurred. . . .

(2) Period of Coverage. The coverage must extend for at least the period beginning on the date of the qualifying event and ending not earlier than . . . the date which is 18 months after the date of the qualifying event. . . . (C) The payment of any premium . . . shall be considered to be timely if made within 30 days after the date due or within such longer period as applies to or under the plan.

(3) Premium requirements. The plan may require payment of a premium for any period of continuation coverage, except that such premium--(A) shall not exceed 102 percent of the applicable premium for such period, and (B) may, at the election of the payor, be made in monthly installments.

The regulations promulgated pursuant to COBRA, 26 C.F.R. § 54.4980B-2 (2000) provide that multi-employer plans, which appear to describe the association of which Firm A is a member, are covered by the continuation requirement if any one employer has more than 20 employees.

While 29 U.S.C.A. § 1163 lists a number of "qualifying events", the one that most often implicates COBRA coverage is set forth in 29 U.S.C.A. § 1163(2):

The termination (other than by reason of such employee's gross misconduct), or reduction of hours, of the covered employee's employment.

The COBRA regulations, 26 C.F.R. § 54.4980B-8, provide that, while a plan may have other payment arrangements, it must allow monthly payments. The regulations are silent as to whether a multi-employer plan may require payments in advance, as is done by SSA.

While ERISA covers most employee welfare benefit plans, as defined in 29 U.S.C.A. § 1002(1) (West 2000), there are some plans, primarily church and governmental plans, 29 U.S.C.A. § 1003(b) (West 2000), that are excluded from ERISA, and thus COBRA. In addition, those multi-employer ERISA plans, in which no employer has more than 20 employees, are not subject to ERISA. For those non-ERISA plans that are insured by Health Service Corporations or HMOs, New York Insurance Law § 4305(e) (McKinney 2000 and 2003 Supplement) requires:

In addition to the conversion privilege afforded by subsection (d) of this section, a group contract . . . shall provide that if all or any portion of the insurance on an employee or member insured under the policy ceases because of termination of employment . . . such employee . . . shall be entitled without evidence of insurability upon application to continue his insurance for himself or herself and his or her eligible dependents, subject to all of the group contract's terms and conditions applicable to those forms of benefits and to the following conditions: . . . (2) (A) An employee or member who wishes continuation of coverage must request such continuation in writing within the sixty day period following the later of: (i) the date of such termination; or (ii) the date the employee is sent notice by first class mail of the right of continuation by the group policyholder. . . . (3) An employee or member electing continuation must pay to the group policyholder or his employer, but not more frequently than on a monthly basis in advance, the amount of the required premium payment, but not more than one hundred two percent of the group rate for the benefits being continued under the group contract on the due date of each payment. . . . (4) Subject to paragraph one of this subsection, continuation of benefits under the group contract for any person shall terminate at the first to occur of the following: (A) The date eighteen months after the date the employee's or member's benefits under the contract would otherwise have terminated because of termination of employment or membership; or (B) The end of the period for which premium payments were made, if the employee or member fails to make timely payment of a required premium payment . . . (6) The conversion privilege afforded by subsection (d) of this section shall be available upon termination of the continuation of benefits described herein.

The time within which premium payments must be made is set forth in the contract issued by the insurer and may not be modified by the insurance agent. New York Insurance Law § 4224(b) (McKinney 2000 and 2003 Supplement) provides:

No insurer doing in this state the business of accident and health insurance . . . and no officer or agent of such insurer and no licensed insurance broker, and no employee or other representative of such insurer, agent or broker shall: (1) make or permit any unfair discrimination between individuals of the same class . . . in any of the terms or conditions of such policies, or in any other manner whatsoever.

It would be a violation of New York Insurance Law § 4224(b) for the insurer to require payment for a greater period in advance for individuals entitled to COBRA benefits than for active employees.

However, the policyholder of a policy or contract issued pursuant to New York Insurance Law § 42235(c)(1)(K) may, in the exercise of its discretion, require that premiums be remitted to it a reasonable period of time before they are due to the insurer. Based upon the facts, it appears that the trust/policyholder under the contract sponsored by SSA has imposed such a requirement.

The Firm, as the former employer, may, subject to the grace period provided by 29 U.S.C.A. § 1162(2)(C), require that the former employee make his or her continuation payments in advance, as is required of the Firm by the policyholder/trust.

Any further questions on COBRA, should be addressed to the United States Department of Labor.